ECON 203 Lecture 4 Outline of Last Lecture I Main Idea II Market Types and Factors Outline of Current Lecture I Main Idea II Demand III Responsiveness Elasticity IV Shift Variables Current Lecture Main Ideas Foundation of capitalism is markets which are made up of buyers and sellers Economists assume things to help them analyze certain factors and variables they ignore other factors in order to focus on the variable they want to look at in class we looked at things through a Perfectly Competitive Market Perfectly Competitive Market Simplified Market many buyers and sellers so that everyone follows the law of supply and demand sellers can only sell at Market Price buyers can only buy at market price price takers No Special deals Markets provide a way to allow people with different goals and views to reach an assignment to benefit both parties Demand Consumer Suppliers are different people with different roles Point of View is how you determine your role A person could be selling tomatoes supplier but then buying onions later consumer Demand is your desire wish for a product backed up by money Financial Capital Demand Schedule table showing the correlation between price and demand Price Demand 10 5 8 20 6 65 Demand Curve Plotting the Demand Schedule on an axis line graph using points from the Demand Schedule Demand Curve for James Coffee 12 10 Price 8 Column2 6 4 2 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 Quantity Demanded Demand Curves will vary consumer to consumer in a particular market only similarity is that if price is lowered demand goes up law of demand Previously we have been seeing the Demand of a Single Consumer the Market Demand is the sum of all consumers at a certain price Price Demand Quantity Market Demand John Jane 5 2 3 5 4 5 7 12 3 8 11 19 2 12 18 30 1 16 25 41 Market Demand Jane Joh Everyntime new people enter a Market the Market Demand increases curve moves out Every time someone leaves a Market the Market Demand decreases curve moves in Responsiveness Elasticity they mean the same thing Elasticity Markets Responsiveness to any stimulus Economists term for responsiveness The Market Demand Curve shows Consumer Responsiveness to Price When Economists look at elasticity they care about the increase or decrease in demand when the price lowers or rises Law of Demand Price and Demand are inverse When you look at elasticity on a graph you re looking at the change in quantity demanded Less Responsive related to theMore change in price of a product Responsive Responsiveness is a Market by Market case depending on Demand Curve Elasticity Equation Q E P Q 2 Q 1 E P 2 P 1 If E is more than absolute value of 1 it is elastic If E is less than absolute value of 1 it is inelastic If E is equal to absolute value of 1 it is unitary elastic Shift Variables Things that affect demand are not limited to price as in the previous examples Shift variables are other factors that affect the outward or inward shifting of the demand curve Income if you have more income you buy more goods at all prices outward shift if you have less goods you buy less goods at all prices inward shift Tastes Desires If you like something you will buy more of it outward shift if you don t like something you will buy less or none at all inward shift Prices of Related goods Substitute and Complementary 1 Substitute goods Goods that can act as a replacement for one another hamburgers hot dogs if the price for one of these goes up then the consumption tends to go down while the consumption for the substitute good tends to go up 2 Complementary Goods Goods that are generally used together cereal milk if the price for one of these goes up then the consumption for that good and its complementary good tends to go down Expectations if people expect one thing to happen they may react a certain way by consuming more of one good and less of another or consuming more or less in general If you expect to have more income then you might buy more goods at higher prices