Lecture 7-131001 Flashcards
What is a normal Good
As the level of income rises-> the demand for the normal good will also rise as well
*ceterus paribus
What is the a superior or luxury good
As the level of income rises, the demand for the superior product will rise a lot *ceterus paribus
What is an inferior good?
As the level of income rises the demand for the product goes down. e.g. hamburger and potatoes
What is a transitory change?
Transitory changes are changes that are temporary and last for only 2 or 3 years, permanent changes have long lasting effects. In other words, Y goes up and stays up. People will adjust their spending based on if they perceive the changes are temporary or permanent
What is the Tx symbol?
This is the symbol for taxes
There is an inverse relationship that exists between taxes, income, and demand
As taxes rise-> your income will fall-> and demand for products will also fall as well
What is the Cr symbol?
This is the symbol for credit (availability) and credit terms (how tight or loose the terms are)
These can be applied to durable goods such as houses and cars
**You look at the real interest rate
What is the T or A symbol?
There is a positive relationship between tastes and advertising
As tastes or advertising rises-> the demand for your product will increase
It is best to see how strong of a relationship this can be.
What is the PE symbol?
This is the symbol for the price expectation
If you expect price to go up in the future->the demand for your product will increase now
If you expect price to fall in the future-> then the demand fill fall now because you can buy it later for cheaper.
There is a self-fulfilling prophecy
As you expect price to rise in the future, the demand for your product will also rise now. When more people do this, the price will rise and this is what you tried to beat.
What is the # symbol stand for in the quantity demanded function?
The number of consumers in your market is a scale variable
Ex: # of households rises-> # of houses rises
What is the econ symbol in the quantity demanded function?
This stands for other economic conditions
Ex: exchange rates, foreign customer base
Employment and unemployment
As the employment levels increase->demand and spending for this market will increase
What is the general concept of demand elasticities
How responsive is a change in one variable to a change in another variable?
Elasticity=% change in dependent variable/% change in independent variable
*Elasticity=e, ceterus paribus
