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# 201 - • The PPC bows out here which means that the...

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For an inferior good, income and demand move in opposite directions. The decrease in income makes the demand curve for white flour shift to the right. The goods are substitutes, so an increase in the price of Coke makes the demand for Pepsi shift to the right. This in turn raises the price of Popsi. Be sure you understand why option A) is not the right answer. The increase in the price of citric acid causes the supply of L-L to decrease. The decrease in the price of peanuts causes an increase in the demand for L- L. Item I shifts the demand curve to the right. Item II shifts the supply curve to the left. Item III shifts the demand curve to the left (the opposite of item I). If all events happen, price change is indeterminate, but depends on the sizes of the changes. If I and II happen, then quantity is indeterminate, but depends on the sizes of the changes.
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Unformatted text preview: • The PPC bows out here, which means that the opportunity cost of pizza (the thing on the horizontal axis) RISES as more pizza is produced. The PPC is "steeper" when pizza is 60 than when it was 40. This means that when pizza is 60, you have to give up more pasta in order to get one more pizza than when pizza was 40. • The Law of Demand means that: • A) demand curves are negatively sloped The price elasticity of demand is the percent change in quantity demanded divided by the percent change in price that caused the change in quantity demanded. It measures the responsiveness of quantity demanded to changes in a good’s own price . • hen pizza was \$8 5 were bought then price went to \$10 and 4 were bought what was the price elasticity • %change in quantitiy/%price change=(4-5)/5/((10-8)/8)=-20%/25%=-.8...
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