LECTURE 2

# LECTURE 2 - • Quantity demanded is when you move along...

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Demand shifters 1. Income – however one must not assume that demand will not increase 2. Prices of substitute goods - if the price of a substitute goes down the demand for the competition goes down 3. Primes of complementary goods – cars-gas, bread-butter if the price of the complement goes up demand for the other goes down 4. Perceived product quality – if quality is better demand is higher 5. Expected future price – if the future price goes up it should increase current demand 6. Market size – how many people are in the market bigger market size yields a higher demand 7. Per unit taxes - \$ per unit increase is per unit tax yields decrease in demand. The total willing to pay is the same however the price willing to pay the seller is lower (the shift must be parallel) DEMAND AND QUANTITY DEMANDED
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Unformatted text preview: • Quantity demanded is when you move along the demand curve • Demand involves the shifters PRICE ELASTICITY (change in q / q1) / (change in price p / p1) = (change in q / change in p) x (p1/q1) • Three ranges in price elasticity •-infinity < X < -1 elastic X = elasticity • X = -1 unit elastic p = price •-1 < X < 0 inelastic q = quanity Cutting price: what happens to total revenue? Two factors: Increase units Decrease revenue ***If demand is price elastic, price and total revenue move in opposite directions – price goes up – demand goes down ***If demand is price inelastic price and total revenue move in the same direction – price goes up – revenue goes up Price elasticity could be different at different points...
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## This note was uploaded on 05/16/2008 for the course EC 201 taught by Professor Xasdf during the Fall '08 term at N.C. State.

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