Demand & goods

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Intros
Lessons
  1. Demand & Goods Overview:
  2. Demand & Goods Terminology
    • What it means to demand
    • Types of Goods
  3. Law of Demand and Demand Curve
    • What it looks like graphically
    • What it looks like algebraically
    • Willingness to Pay
    • Substitution Effect
    • Income Effect
    • Linear equation only for beginner microeconomics
  4. Change in Demand
    • Increase in demand
    • Decrease in demand
    • Factors for Change in Demand
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Examples
Lessons
  1. Understanding the Types of Goods and Law of Demand
    ____________ are goods that are almost identical to each other.
    1. Substitutes
    2. Inferior goods
    3. Complements
    4. Perfect Substitutes
  2. Suppose that you enjoy coffee, and your income increases this month. Would you buy more of instant coffee? Why or why not?
    1. Suppose the price of apples went from $0.50 to $1.00, and assume that no changes in average income, population, or any other influences caused this to happen. Explain how the rise in the price of apples will affect the demand for apples, and the quantity of apples demanded.
      1. Using the Demand Curve
        Using the follow information from the table, graph the demand curve.

        Quantity Demanded (Chocolate)

        Price (dollars)

        20

        1

        15

        2

        11

        3

        8

        4

        6

        5

        1. Using the demand curve P = a - bQDbQ_{D}, find:
          1. The price of the good if a = 50, b = 2, QDQ_{D} = 2
          2. The quantity of the demand if a = 40, b = 3, P = 5
        2. Understanding the Change in Demand
          Suppose you know that your income will increase 20% next month. How would your demand and demand curve change for
          1. Cheap Clothes?
          2. Expensive Clothes? Explain
        3. When there is an increase in demand, the demand curve shifts _______________. When there is a decrease in demand, the demand curve shifts ___________________.
          1. Rightward, Rightward
          2. Rightward, Leftward
          3. Leftward, Rightward
          4. Leftward, Leftward
        Topic Notes
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        Demand & Goods Terminology

        When you demand something, you assume 3 things:
        1. You want it.
        2. You can afford it.
        3. You plan to buy it.

        Quantity Demanded: is the amount of good or service that consumers plan to buy during a time period at a specific price.


        Normal Goods: goods where quantity demanded goes up when income rises and vice versa.

        Inferior Goods: goods where quantity demanded goes down when income rises.

        Substitutes: goods that can be used as replacements for one another. When the price of one good increases, people switch to the substitutes.

        Perfect Substitutes: substitutes that are almost identical to each other.

        Complements: goods that go together. A decrease in price of one good results in an increase in quantity demanded for the other, and vice versa. (example: pencils and erasers)

        Law of Demand and Demand Curve

        Law of Demand: quantity demanded of the good changes as the price of the good changes. As one increases the price of the good, the quantity of the good decreases and vice versa.

        The demand curve function is P = a - bQDbQ_{D}, where
        1. P is the price of the good or service
        2. QDQ_{D} is the number of quantity demanded
        Demand curve function

        The demand is downward sloping because of two reasons: substitution effect and income effect.

        Substitution Effect: when the relative price of a good or service rises, people will try to look for substitutes. Once the substitute they are looking for is found, people buy it. Thus, the quantity of the good or service decreases.

        Income Effect: The price of the good or service rises, so people cannot afford all the things they bought previously. So, the quantity of the demand of the good or service decreases.

        Change in Demand

        The demand curve can either shift rightward or leftward.

        Reasons why demand curves can shift:
        1. Price of substitute goods: If price of substitute good increases, demand for the original good increases and vice versa
        2. Expected future prices: If the price of the good is expected to increase in the future, they will buy more now, causing the demand to increase.
        3. Income: People buy more normal goods if they have more income. This is the opposite for inferior goods.
        4. Expected future income: If income is expected to increase in the future, buyers will increase the demand for the quantity now.
        5. Population: the larger the population, the bigger the demand
        6. Preferences: People with the same income has different demands for the good.
        Demand curve shift rightward or leftward