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EC 201 9-12-08 - Coffee& pop Different brands of same...

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EC 201 9-12-08 P oil → S gasoline left (S↓) P oil ↑ → P gasoline ↑ (all else equal) Ike missed most of the Gulf of Mexico oil rigs o not going to miss refineries – ¼ gasoline used in US processed in these o P oil ~ unchanged o P gasoline ↑ 30 % Avian flu: slaughter of chickens o → deterioration of technology for eggs o → S eggs left ( S↓) o →P↑Q↓ More fun demand shifter vocabulary o Income normal good Income ↑ → D↑ (right) Income ↓ → D↓ (left) Inferior good Income ↑ → D ↓ (left) Income ↑ → D ↑ (right) Thrift- store clothes Spam o Price of other goods o Hot dogs & buns o P buns ↑ → P “dog/bun composite” ↑ o P wheat ↑ wheat input buns
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o D hot dogs ↓ (left) o “complements” (tend to be used together) Coffee & cream Coffee & sugar PB & jelly o Complements: P A ↑ → D B ↓ (left) P A ↓→ D B ↑ (right) o P Eur. Vacation ↑ → D USA vacation ↑ (right) o “substitutes” P A ↑, substitutes away from A towards B Coffee& tea
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Unformatted text preview: Coffee & pop Different brands of same good P x ↑ → D y ↑ (right) P x ↓ → D y ↓ (left) Mobil Hagadorn & Haslett Marathon Hagadorn & Grand River o Fairly close substitutes o Prices of close substitutes must be close o Demand right → P ↑ D ↑ More popular Incomes ↑ (normal) Income ↓ (inferior) Price of complement ↓ Price of substitute ↑ o Demand left → P ↓ Q ↓ Less popular o S right → P ↓ Q ↑ Price of input ↓ Tech. improvement o S left → P ↑ Q ↓ Deterioration of tech. o Market forces push strongly toward equilibrium price Unless equilibrium price is outlawed Price controls A. price ceiling • Maximum legal price o Ex. : rent controls Some communities Gasoline price controls until 1980’s B. price floor • Minimum legal price o Ex: agriculture price supports o Minimum wage...
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EC 201 9-12-08 - Coffee& pop Different brands of same...

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