Lektion 1: Welfare states and markets ch 1-2 Flashcards
What does micro economic deal with? (iforhold til makro)
Micro economics, deals with the bahaviour of individual economic units (consumer, workers, investors, owners of land, business firms).
Micro economic explains how and why this units ^^ make economic decisions
We go into the detail of how people produce goods, how much and why. All from a micro point of view. Try to understand why they behave the way they behave.
Macro: how aggregated virables interact together
What is a trade-off?
Tradeoff = bytte/byttehandel
Microeconomics describes the tradeoffs that consumers, workers, and firms face, and shows how these tradeoffs
are best made.
Demand:
What is a demand curve?
The demand curve shows how much of a good consumers are willing to buy as the price per unit changes.
Relationship between the quantity demanded and the price of the good vises sådan her:
QD = QD (P)
Demand for the good: Qd
Expected relationship:
P↓ → Q↑
P↑ → Q↓
We move along the demand curve when the price of the good changes.
We talk about a change in the quantity demanded.
The demand curve aggregates the individual demand of all consumers.
How will the demand evolve as the function of the price? How will the demand change?
It will decrease.
If the price of coca cola decreases we would buy more.
Two basic assumptions on this basic demand assumption.
Demand:
Explain change in the quantity demanded
As prices get lower, more and more consumers are willing to buy the good: the aggregate demand increases. The slope of the demand curve is negative.
Slope: = ΔP/ ΔQ
= (P2-P1)/(Q2-Q1)
Demand:
What factors affect demand (efterspørgelse?)
Changes in the prices of related goods also affect demand.
Necessity goods: P↑ → Q↓ the Price increases and the quantity falls.
Luxury goods: P↑ → Q↑ (Giffen goods) The demand increases when the price increases because they have another kind of value (apple products)
Substitutes: P↑ → Q↑ Goods are substitutes when an increase in the price of one leads to an increase in the quantity demanded of the other. For example, copper and aluminum are substitute goods. Because one can often be
substituted for the other in industrial use, the quantity of copper demanded will increase if the price of aluminum increases. Likewise, beef and chicken are substitute
goods because most consumers are wi l l ing to shift their purchases from one to the other when prices change.
Complements: P↑ → Q: Goods are complements when an increase in the price of one leads to a decrease in the quantity demanded of the other. For example, automobiles and gasoline are complementary goods. Because they tend to be used together, a decrease in the price of gasoline increases the quantity demanded for automobiles. Likewise, computers and computer software are complementary goods. The price of computers has dropped dramatically over the past decade, fueling an increase not only in purchases of computers, but also purchases of software packages.
Normal goods: I↑ → Q(up) opposite sometimes. Im rich and my consumption would stop on public transportation e.g.
Independent: P↑ → Q
Inferior goods: I↑ → Q↓
Demand:
Explain change in demand
The demand curve shows how the demand varies when the price changes.
When other variables than the price change, the whole demand curve shifts.
- Income
- Prices of other goods
- Consumer preferences
We talk about a change in demand.
Demand:
Explain the affect of increase in income
For a given price, the quantity demanded is now larger because consumers have more income to spend.
The demand curve shifts to the right.
If income decreases the demand curve shifts to the left.
This is what happens when we have increase in income.
Now for any given price the quantity of demand is now larger because consumers have more income to spend.
After the increase in income the (strippled) linje goes to the right.
If income is decreased the curve would go to the left!
(FIGURE PÅ SIDE 51):
Because this increase would occur no matter what the market price, the result would be a shift to the right of the entire demand curve.
Again, the demand curve will shift to the right. As we did with supply, we wi l l use the phrase change in demand to refer to shifts in the demand curve, and reserve the phrase change in the quantity demanded to apply to movements along the demand curve.
Demand:
Explain the maethematical notation of demand
The demand function describes the precise relation between quantity demanded and price.
The demand function may be any decreasing function.
We focus here on one specific form, the linear demand function: QD= a – bP
Also convenient to express price as a function of quantity.
Inverse demand function:
P= a/b – QD/b
Demand:
How to construct the demand curve from individual valuations?
A consumer buys a good if his willingness to pay for that good (his valuation) exceeds the price.
As the price decreases, more and more consumers are willing to buy the good: demand increases.
The willingenss to pay for a good is how much I like the good.
How does a demand curve look like?
Note that the demand curve in a figure = slopes downward: Consumers are usually ready to buy more if the price is lower.
For example, a lower price may encourage consumers
who have already been buying the good to consume larger quantities. Likewise, it may allow other consumers who were previously unable to afford the good to
begin buying it.
