Rizzo started class by putting up a graph of his quantity of a product that he’d buy at certain prices and his wife’s. He also put a market which is the two added together. He said that the sum quantities at each price for the market demand. Mikes and his wife’s at each price. He then said that the price for him to give us an A would be $3,000,000 because that’s how much he would make the rest of his life assuming that he would be fired after awarding a student an A.
Comparative statics- What things impact how much we buy. The 2 factors in this are the prices of the goods itself and all other stuff. (changes the way we thing about burritos.)
Change in Quantity demand- Any movement along an existing demand curve.
The law of demand is similar to knowing what temperature water boils at.
Changes in demand- When price doesn’t change, but something in the individual changes. This changes the demand curve.
Things that change demand are
1. Income
2. Prices of other things
3. Expectations
4. Tastes
5. # of participants. (If we add or take away consumers)
If something other than price changes making us want to consume more burritos then the demand shifts out- at the given price, you consume more.
If price change caused Rizzo to eat more, then quantitative demand changes. If demand shifts in on the graph, then people consume less.
Income- When you get more income means that we will consume more.
Normal goods- When Income increases and Quantitative Demand increases as well.
Inferior goods- when Income increases and Quantitative Demand decreases. This would be if some one decides to eat steak over noodles because they now can afford the more expensive steak.
No good is normally good or inferior. This is due to preferences that different people have.
An interesting point that Rizzo made in class was that if more used cars are bought, than this helps to signify that we are in a recession.
PRICES OF OTHER THINGS- 2 types of goods in relation to burrito. 1. Is a substitute (replacement) This would be that if fish fry becomes more expensive, it will push the demand curve more out. There is no natural pairing of goods. We can only say that it’s a substitute by examining the relationship. The other type of good is complements (goes together). 1. If the price of hot sauce goes up and Rizzo only eats his burrito with hot sauce, then he might buy less burritos even if the burrito price stays the same. This is due to his want of hot sauce on the burrito. These 2 goods are tied together.
Quantitative Demand- The amount of goods we consume based on the ability and willingness to pay.
Expectations- We may consume more expecting our income to go up in the future. We respond based on if the product is good or inferior. If we expect the price of a product to go up, we consume more today. More of this product is bought at the current price so that we don’t have to pay more in the future. We buy more expecting the price of the substitute is going to fall. Rizzo makes his whole house run on natural gas expecting the price of natural gas to drop in the future.
Rizzo takes about ELASTICITY and the law of demand which states that when tradeoffs get worse, we get less and when trade offs become better, we get more.
Elastic- Price affects how much we buy. (if the price of a vacation drops, more people will invest in one.)
Inelastic- Price doesn’t affect how much we buy. (if the price of pencils goes up or down, people will still buy the same amount.)
We measure elasticity with respect to anything. Anything that changes quantitative demand, we can relate to elasticity.
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