W12 MIC 03 S&D - Elasticity

W12 MIC 03 - Supply Demand Analysis Elasticity N o te s f o r C h a p te r 2 Demand Curves Shifters Supply Curves Shifters Elasticity L in ea r D

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Northwestern University ECON 310-1: Microeconomic Theory Profs. Ron Braeutigam & Jim Hornsten Winter 2012 • Demand Curves & Shifters • Supply Curves & Shifters • Elasticity Linear Demand, PED & The Revenue Test Drivers of Price Sensitivity • Markets • A Back of the Envelope Trick Supply & Demand Analysis; Elasticity Notes for Chapter 2 Notes for Lecture #03
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Northwestern University ECON 310-1: Microeconomic Theory Profs. Ron Braeutigam & Jim Hornsten Winter 2012 In ECON 202, we often used simple equations like P = 100 - Q. Last time, Ron used inverse demand function P d = 90 - Q d + Y. We could rewrite this as demand function Q d [P d ,Y] = 90 - P d + Y. Then, the left-hand side variable (quantity demanded) is a function of two RHS variables (own price and income). Amazon’s Kindle Fire® is a 7” tablet PC. What variables do you think belong in its 2012 Chicagoland demand function? With one or more neighbors, come up with a list of things that would shift this demand curve. (Now.) Q d KindleFire = f [ P KindleFire , Y , and what else?]
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Determinants of Demand # Potential Buyers Demographic Shifts (Census!) Population Size Baby Boomers, Latinos Household Income Normal Goods (buy more) Income Tax Policy Inferior Goods (buy less) High Unemployment Tastes & Preferences Fads, Trends, Coolness Hybrid or Electric Cars Lil Wayne, Lil Jon, Lil Rob Price & Availability of Related Goods Substitutes (used instd of) Brands of smart phones Complements (used with) Cars & gas, smart phone & apps Expectations Future price changes Energy, Housing, Food New technology On-Demand, Blu-Ray, DVD, VHS Upcoming Elections Political priorities Regulatory environment Tax code Pending litigation “Things that shift demand curves $ Q D A price change causes movement along a given demand curve, but a change in one of these determinants shifts the entire D curve.
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Northwestern University ECON 310-1: Microeconomic Theory Profs. Ron Braeutigam & Jim Hornsten Winter 2012 Determinants of Demand for the Kindle Fire Own Price: P KindleFire Income: Y, the average household income Price & Availability of Substitutes: P iPad2 , P NookColor , P Kindle , P Netbook or Laptop , P PhysicalBooks , P AngryBirdsHandheldToy Price & Availability of Complements: P e-books , P AndroidApps , P AmazonPrime (unlimited streaming) # Potential Buyers … relevant population of Chicagoland Tastes & Prefs: will e-books and tablets be cool or lame in 2012? (Cf. RIM’s BlackBerry) Expectations: New technology (imitate iPhone’s Siri)? New copyright law? New US president or regulatory environment? Will digital content prices rise or fall? “Health” of Amazon, Android, and Jeff Bezos?
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Northwestern University ECON 310-1: Microeconomic Theory Profs. Ron Braeutigam & Jim Hornsten Winter 2012 The Butterfly Effect Game: Good Practice for ECON Fans • What is the butterfly effect?
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This note was uploaded on 02/16/2012 for the course ECON 310-1 taught by Professor Schulz during the Winter '08 term at Northwestern.

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W12 MIC 03 - Supply Demand Analysis Elasticity N o te s f o r C h a p te r 2 Demand Curves Shifters Supply Curves Shifters Elasticity L in ea r D

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