Econ 101

Week 3

Demand has a negative relationship between Price and Quantity demanded (aka Law of Demand) P Qd , or P Qd

Supply has a positive relationship between Price and Quantity supplied (aka Law of Supply) P Qs , or P Qs

The demand (supply) is the entire line, while the quantity demanded (Supplied) is a specific pt on the demand curve

Compliments are goods and services consumed together ( gas + cars)

Substitutes are goods consumed one instead of the other ( beef or pork)

Demand for inferior goods increase (decrease) as income decreases (increases)

I D , or I D ( negatively related)

Demand for normal goods increase (decrease) as income increases (decreases)

I D , or I D ( positively related)

With Positive economics you are positive that that is how the economy actually works.

With Normative economics people are describing how the world should work (leaves room for uncertainty and disagreements due to opinions)

If price is higher than equilibrium there will be a surplus. Qs>Qd. Price will decrease because not everyone has a buyer for their goods at the higher price.

If price is lower than equilibrium there will be a shortage. Qs<Qd. Price will increase back to equilibrium because not everyone will get what they demand at that lower price, causing people to pay more.

A movement in supply or demand of a good is ONLY caused by a change in price of that good.

Factors causing shifts (a change in Supply or Demand at a constant price)

Demand: Price of related goods, income, # buyers, expectations, preferences, specific factors.

Supply: Price of related goods, technology, # sellers, expectations, input prices

*Name 2 examples for each, and be able to determine which factors affect which curve, or can affect both.

7.) Draw the demand curve for the normal good. When Qd increases to 110 is this due to a change in income ( a shift) or a change in the price ( a movement)?

Draw the effects on the demand for hamburgers at the State Fair, and say which factor it is.

  1. Price of hamburger buns increase
  2. Price of hotdogs increase
  3. Income rises (hamburgers are normal)
  4. The State Fair has record attendance
  5. Hamburgers are suddenly found to cure cancer
  6. Price of hamburgers rise

Draw the effects of the supply of RC cola for the Mid West, and describe which factor this represents.

  1. RC is found to be #1 cause of obesity
  2. Income falls (RC is an inferior good)
  3. The price of pepsi goes down
  4. the price of pretzels go down (you eat these when having a pop)
  5. the price of RC goes down
  6. The population of the Midwest quadruples

15. Diagram how each of the following events affect the current equilibrium price and quantity of pizza, and tell which factor it is.

a. price of cheese rises

b. health hazards of hamburgers is widely publicized

c. price of tomato sauce falls

d. incomes rise, pizza is an inferior good

e. consumers expect the price of pizza to fall next week