ECON 102 Lecture Notes - Lecture 6: Peanut Butter, Ramen, Normal Good

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26 Sep 2017

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Demand shifters: non-price factors or changes in the price of other goods. Income is a demand shifter: shows normal goods versus inferior goods, normal goods- goods in which demand increases as income rises, most goods are normal goods. Inferior goods are goods in which demand falls as income rises: when income rises, we buy more normal goods and less inferior goods, examples: ramen noodles, spam, dr. thunder, natural light beer. For normal goods: there is a direct relationship between income and demand for normal goods. Income increase will cause demand shift right (outward) Income decrease will cause demand shift left (inward) For inferior goods: there is an inverse relationship between income and demand for inferior goods. Income increase will cause demand shift left (outward) Income decrease will cause demand shift right (inward) Shifts concerning substitutes: there is a direct relationship between the price of a substitute and the demand for a given good, example:

Related Questions

1. When demand is inelastic, a decrease in price will cause

a. an increase in total revenue.

b. a decrease in total revenue.

c. no change in total revenue but an increase in quantity demanded.

d.no change in total revenue but a decrease in quantity demanded.

2. For which of the following types of goods would the income elasticity of demand be positive and relatively large?

a. all inferior goods

b. all normal goods

c. goods for which there are many complements

d. luxuries

3. Which of the following should be held constant when calculating the income elasticity of demand?

a. the quantity of the good demanded

b. the price of the good

c. income

d. All of the above should be held constant.

4. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

a. positive.

b. negative.

c. either positive or negative. It depends on whether A and B are normal goods or inferior goods.

d. either positive or negative. It depends on whether the current price level is on the elastic or inelastic portion of the demand curve.

5. As the price elasticity of supply increases, the supply curve

a. becomes flatter

b. becomes steeper

c. becomes downward sloping.

d. shifts to the right.

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A1. The demand in Japan for new automobiles is elastic and sensitive to market prices. Given that, describe the effect of each of the following on the quantity demanded or the demand for new autos in Japan. Indicate whether the effect of each is an upward or downward movement along a given demand curve or instead involves an outward or inward shift in the demand curve for new autos. Explain your answers.

a. A decrease in the average price of new Japanese automobiles.
b. A fall in Japanese interest rates.
c. A rise in the price of public transportation in Japan.
d. A rise in the price of food in the United States.

A2.Suppose the demand for beer is characterized by the following point elasticities:

own price elasticity = -2.5

cross-price elasticity with soda = +3

income elasticity = +2

Based on the given elasticities, answer the following. Explain your answers.

a. If a firm in the industry wishes to increase total sales revenue (ignoring cost considerations), will it raise or lower its selling price? Why?

b. What happens to the demand for beer if the price of soda falls by 2%? Explain your answer.

c. What happens to the demand for beer if consumer income rises by 5%? Be specific.

d. Is beer a normal or inferior good? Explain.

(1) If a demand curve shifts to the left, then:
a) price would go up and quantity would go down
b) price would go down and quantity would go up
c) a lower price and quantity would result
d) a higher price and quantity would result

(2) Demand and supply curves are drawn assuming ceterisparibus.This means that:
a) economists ignore all assumptions
b) economists don't watch for the fallacy of false cause
c) changes will be proportional
d) all other things besides price and quantity are unchanged

(3) If steak and potatoes are complements, when the price ofsteakgoes up, the demand curve for potatoes:
a) shifts to the right
b) shifts to the left
c) stays the same
d) shifts to the right and then moves back

(4) Given that chicken and beef are substitute goods, if thepriceof chicken decreases substantially, there would be:
a) an increase in the demand for beef
b) a decrease in the demand for beef
c) a decrease in the quantity for beef demanded
d) no change in the demand for beef

(5) Every day for the past two years you've had ham and cheese onawhole wheat bagel for lunch at Bungalow Bob's BagelBoutique.However, the price of whole wheat bagels has risen by 10cents sotoday you decide to have ham and cheese on rye bagel. Inthis case,whole wheat and rye bagels are best considered:

a) superior goods
b) normal goods
c) substitute goods
d) complementary goods

(6) For most goods, purchases tend to rise with increases inbuyers'incomes and to fall with decreases in buyers' incomes. Suchgoodsare known as:

a) inferior goods
b) direct goods
c) normal goods
d) luxury goods

(7) Economists know that a particular good can be classified asaninferior good if a(n)______ increase in buyers' incomecausesa(n)_____

a) increase; increase in demand
b) increase; increase in quantity demanded
c) increase; decrease in demand
d) decrease; decrease in demand

(8) An increase in the demand for medical services caused byanincrease in the number of people 65 is most likely attributabletowhich demand shifter?

a) income
b) consumer preferences
c) prices of other goods
d) demographic characteristics

(9) Which of the following would shift the demand curve fornewtextbooks to the right?

a) a decrease in the price of paper
b) a fall in the price of used textbooks
c) an increase in college enrollments
d) a fall in the price of new textbooks

(10) How a supply curve is sloped and located depends on:

a) technology
b) resources prices
c) the number of producers or sellers
d) all of the above

(11) A decrease in supply means:

a) a shift to the left of the entire supply curve
b) moving downward (to the left) along the supply curve withlowerprices
c) less will be demanded at every price
d) more will be supplied at every price

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ECON 102 Lecture Notes - Lecture 6: Peanut Butter, Ramen, Normal Good

ECON 102 Full Course Notes

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