Micro.Week2.2007 - 1 2/1 Review issue of demand Remember...

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1 2/1 Review issue of demand Remember : defined as what consumers WANT to buy, given conditions Demand for X = D X (P X , P Y1 , P Y2 , . .., I, pop) Demand depends on (is a function of) 1. own price P X dD X /dP X < 0 (LAW OF DEMAND) 2. other prices P Y effect of change could go either way if dD X /dP Y > 0 substitute if dD X /dP Y < 0 complement Note that this is a definition, not an explanation 3. income I again effect of change could go either way if dD X /dI > 0 normal good if dD X /dI < 0 inferior good 4, etc) tastes, populationusually population increases demand tastes obvious either way 5 ?? quality not part of function (issue is how we define a “good”)
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2/2 Now, as we discussed, we hold everything other than own-price constant CETERIS PARIBUS GRAPH :X = D(P X ) (notice we graph it “sideways”) NOTE difference between “demand” and “quantity demanded” also remember - difference between what consumers want and what they can actually purchase So at any specific price, quantity demanded is what consumers want, but it may not be available
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2/3 NOW - what happens to this curve when “other things change” eg: 1) P X changes 2) P Y changes 3) I changes 4) tastes change 1) P X changes 2) P Y changes
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2/4 3) I changes 4) tastes change
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2/5 REVIEW: What does affect D, and what does not affect D? 1) Price of X (P X ) 2) Price of Y (P Y ) 3) Income of consumers (I) 4) Tastes 5) Population 6) Quality ??? 7) Availability 8) Advertising 9) Cost of Production 10) Technology 11) Wages ??? 12) Number of Firms
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2/6 ASIDE: WHAT SHOULD YOU BE DOING IN THIS COURSE TO DO WELL? 1. AUTOMATIC ASSIGNMENT - REVIEW EACH DAY’S CLASS
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Micro.Week2.2007 - 1 2/1 Review issue of demand Remember...

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