· Comparative statics
o What things impact how much we buy?
§ Prices of the good in question
§ “Other stuff”
o Distinguish difference between Quantity Demanded and Demand
o Quantity Demand can change from point A to point B due to changes in price
o Demand changes due to:
o Income
o Prices of complementary, supplementary, or other goods
o Expectations
§ Expectations of the other two options can also impact demand
o “Tastes” (preferences of the market)
o Number of participants
o If something other than price changes, then the demand curve can shift outward to fit the change in demand (see above graph)
o The relationship between prices and quantities changes at any price
· Fun Fact: 99% of the goods you would want to consume you would buy more of if you had more money
· Normal goods:
o When income increases, so does the quantity demanded
· Inferior goods:
o When income increase, quantity demanded decreases
o For some, there is no such thing as an inferior good
o One way we notice we are in a recession is that economists track the amount of inferior goods which are consumed (increases mean amount of good consumed)
§ Example: Ramen noodles, state parks
o Also “Giffin Goods,” which are totally opposite of inferior goods
· Substitute Goods
o Replacements
o When the price for a good similar to that good increase, you buy more of the substitute good
o When the price for a good similar to that good decreases, you buy more of the good instead of the substitute good
o Example: Fast food, Coke and Pepsi, Pizza and Chinese Food
· Complementary Goods
o Goods which go together
o When the price of one of the goods goes up, it decrease the demand for the other goods complementary to it
o You are treating the good as you would the complementary good
o Example: Whip Cream and strawberries, maple syrup and waffles, condoms and lubricant
· Demand due to ability and willingness
o Ability: Income and Prices of other things
§ Ability changes when it becomes harder or easier to purchase a good
o Willingness: Expectations, “Tastes,” Number of Participants
· Elasticity
o When tradeoffs are easier, we do more
o When tradeoffs are harder, we do less
o ^^^ But…How much more? ^^^
o When consumption is very responsive, we say that the demand for the good is elastic
§ Example: Trips for Europe,
o When consumption is unresponsive to fluctuations in price, the demand for the good is inelastic
§ Example: Bread, pencils
o Anything can shift how much of an item you consume
o Own Price Elasticity of Demand
§ A = % change in QD / % change in the price of the good
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