Lecture 2 - Mercedes Miranda BE530 Mercedes Miranda BE530 1...

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Unformatted text preview: Mercedes Miranda BE530 Mercedes Miranda BE530 1 2.1 Demand Mercedes Miranda BE530 Mercedes Miranda BE530 2 1. Demand The following factors determine the demand for a good: Price of the good Tastes Information Prices of related goods Complements and substitutes Income Government rules and regulations Other Mercedes Miranda BE530 Mercedes Miranda BE530 3 Demand: the demand curve Quantity demanded- the amount of a good that consumers are willing to buy at a given price, holding constant the other factors that influence purchases. Demand curve- the quantity demanded at each possible price, holding constant the other factors that influence purchases. Mercedes Miranda BE530 Mercedes Miranda BE530 4 Fig. 1: A Demand Curve Law of Demand consumers demand more of a good the lower its price, holding constant all other factors that influence consumption p , $ per kg 200 220 Demand curve for lamb, D 1 240 286 Q, Million kg of lamb per year 2.30 3.30 4.30 14.30 Mercedes Miranda BE530 Mercedes Miranda BE530 5 Fig. 2: A Shift of the Demand Curve p , $ per kg 220 176 Effect of a 60¢ increase in the price of beef D 1 D 2 232 Q, Million kg of lamb per year 3.30 Mercedes Miranda BE530 Mercedes Miranda BE530 6 A. The price of iPods falls B. The price of music downloads falls C. The price of CDs falls Draw a demand curve for music downloads. What happens to it in each of the following scenarios? Why? A C T I V E L E A R N I N G A C T I V E L E A R N I N G 1 1 : : Demand Curve Demand Curve Mercedes Miranda BE530 Mercedes Miranda BE530 7 A. Price of iPods falls A. Price of iPods falls Q 2 Price of music down- loads Quantity of music downloads D 1 P 1 Q 1 Music downloads and iPods are complements. A fall in price of iPods shifts the demand curve for music downloads to the right. Mercedes Miranda BE530 B. Price of music downloads falls B. Price of music downloads falls The D curve does not shift. Move down along curve to a point with lower P , higher Q . Price of music down- loads Quantity of music downloads D 1 P 1 Q 1 Q 2 P 2 Mercedes Miranda BE530 Mercedes Miranda BE530 9 C. Price of CDs falls C. Price of CDs falls P 1 Q 1 CDs and music downloads are substitutes. A fall in price of CDs shifts demand for music downloads to the left. Price of music down- loads Quantity of music downloads D 1 D 2 Q 2 Mercedes Miranda BE530 Mercedes Miranda BE530 10 The Demand Function The lamb demand function is: Q = D(p, p b , p c , Y) where Q is the quantity of lamb demanded p is the price of lamb (dollars per kg) p b is the price of beef (dollars per kg) p c is the price of chicken (dollars per kg) Y is the income of consumers (thousand dollars) Mercedes Miranda BE530 Mercedes Miranda BE530 11 From the Demand Function to the Demand Curve Estimated...
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This note was uploaded on 07/15/2011 for the course ACC 360 taught by Professor Marshallhunt during the Spring '09 term at University of Michigan-Dearborn.

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Lecture 2 - Mercedes Miranda BE530 Mercedes Miranda BE530 1...

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