PAM_2000_Spring_2009_Lecture_2

PAM_2000_Spring_2009_Lecture_2 - PAM 2000 Lecture 2 Agenda...

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    PAM 2000 Lecture 2 Agenda: Demand Shifters Supply Curves Supply Shifters Market Equilibrium
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    Reading for PAM 2000 M,B,N Ch. On FDA approval
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    Recall: Demand Shifters  (con’t) Things that shift the demand curve, or demand shifters include: Income of demanders Price of substitutes Price of complements Expectations of the future
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    Demand Shifters (con’t) PRICE OF SUBSTITUTES What is a substitute good?(replaceable goods and serves a similar function in the demanders eyes EX: Oranges and grapefruits; cars and buses; pencils and pens, beer and wine Consider Bob’s demand for oranges Price/quantity purcahsed $2.40 lb 6 3.00 5 3.50 4 4.00 3 4.50 2
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    Demand Shifters (con’t) Now say the Price of Grapefruits Increased from $2.00/lb to $3.00/lb Q: What will happen to Bob’s demand for oranges at each price? It will increase A rise in the price of a substitute for good X will cause an increase in the demand for X
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    Demand Shifters (con’t) Price of Complementary goods Q: What are complementary goods? Goods that go together Examples? Peanut butter and jelly, cars and gas, etc.
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    Demand Shifters (con’t) Q: What happens to Bob’s demand for oranges if the price of the complimentary good rises? The demand for oranges will go down
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    Demand Shifters (con’t) If the price of a good that is complimentary to good X rises, then the demand for good X falls, and conversely
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    Demand Shifters (con’t) Expectations about the future: Say people expect oranges to be very scarce in the future (expect a harsh Florida winter) They expect prices to be high in the future Commodity traders would care about this
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    Demand Shifters (con’t) What might happen to the demand for oranges now?
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