Distribution of income normal good the demand for a

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Distribution of Income Normal good The demand for a normal good increases when income increases Inferior good The demand for an inferior good decreases when income increases Income-independent good The demand for an income-independent good doesn’t change when income changes Changes in the distribution of income will affect the demand for those goods consumed by the affected individuals
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© Gustavo Indart Slide 13 An Increase in Income: Normal Good After the increase in income, at price P 1 the quantity demanded increases to Q 2 – the demand curve shifts up to the right P Initially, at price P 1 the quantity demanded is Q 1 P 1 D’ D Q Q 1 Q 2
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© Gustavo Indart Slide 14 An Increase in Income: Inferior Good After the increase in income, at price P 1 the quantity demanded decreases to Q 2 – the demand curve shifts down to the left P Initially, at price P 1 the quantity demanded is Q 1 P 1 D D’ Q Q 2 Q 1
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© Gustavo Indart Slide 15 Changes in Population or in Tastes/Preferences An increases in population will cause the demand for most commodities to increase as well A change in tastes/preferences will cause an increase in the demand for the now preferred commodity, and a decrease in the demand for the now less preferred commodity
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© Gustavo Indart Slide 16 Shifts vs. Movements along the Demand Curve If the price of a good changes but everything else remains the same, then the quantity demanded of that good has changed ¾ This represents a movement along the Demand Curve If the price of the good remains constant but the quantity demanded changes, then the demand for that good has changed ¾ This represents a shift in the Demand Curve and not a movement along the initial Demand Curve
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© Gustavo Indart Slide 17 Movement along the Demand Curve Ceteris paribus, at price P 2 the quantity demanded increases to Q 2 – this is a movement down along the demand curve A B P Initially, at price P 1 the quantity demanded is Q 1 P 1 P 2 D Q Q 1 Q 2
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© Gustavo Indart Slide 18 A Shift in the Demand Curve This means that one or more of the variables that determine the position of the demand curve has changed. A B If at price P 1 the quantity demanded increases to Q 2 , then the demand curve has shifted up to the right. P P 1 Initially, at price P 1 the quantity demanded is Q 1 . D’ D Q Q 1 Q 2
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© Gustavo Indart Slide 19 The Quantity Supplied The quantity supplied of a commodity is the amount that producers plan to sell in a given period of time at a particular price Quantity supplied of a commodity depends on many factors besides its own price ¾ Prices of inputs ¾ State of technology ¾ Number of firms in the industry
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© Gustavo Indart Slide 20 The Supply of a Commodity The supply of a commodity refers to the entire relationship between the quantity supplied and the price of a commodity, holding all other factors constant The supply of a commodity is shown by the supply schedule and/or the supply curve
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© Gustavo Indart Slide 21 The Supply Schedule The supply schedule for a commodity shows the different quantities supplied when only the price of the commodity is allowed to change 10 6 9 5 7 4 4 3 1 2 0 1 Tons per Week Price (lb.) Supply Schedule for Apples
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