séance 2 Flashcards
what is the definition of individual demand?
A consumer’s individual demand is the relationship between the price and the quantity purchased at that price
what is the rule for buyers when thinking at the margin?
buyers will buy as long as MV(q)>P
the MV(q) curve also represents the …
MV(q) curve = demand curve d(q)
how to compute consurmer surplus?
CS = total valuation - expenses
when does consumer maximizs profit?
when P=MV(q)
TF: thinking at the margin doesn’t give the same result as surplus maximization
F: surplus maximization gives the same results as thinking at the margin
on the graph, what represents the total valuation?
surface under the MV(q) curve up until the qty bought
what is the link between valuation and individual demand
Because an individual will choose q such that MV(q) = P, the consumer’s demand curve coincides with her marginal valuation curve.
what is the definition of qty demanded
The quantity demanded of a good is how much of that good an individual or a population is willing and able to purchase, at a given price.
what is the definition of demand?
The demand for a good is the relationship between the price and the quantity demanded of that good
define the particularities of the law of demand
for most goods, the demand curve is downward sloping: price and qty are inversely related. holding other things equal, a consumer will want to purchase more of a good as its price goes down
what is market demand?
it is the aggregate demand of an entire population
what is the market qty demanded?
it is the sum of qties demanded by all individuals
what does the market demand curve represents?
it represents the horizontal sum of all individual curves (you obtain it by adding qties, never add prices)
what is to be considered when looking at the demand function?
the demand fct explains how the qty demanded for a good varies when the price of the good changes, supposing that all other factors potentially affecting demand are all held constant
what is the exception to the law of demand?
luxury goods (Veblen goods) or essential goods, like life saving medecine (giffen goods): ppl sitll buy even if the price goes up
what happens when the price of a substitute good goes up ?
ppl buy more of the other good
what happens when the price of a complement goes up?
ppl buy less of the good
what happens with demand for normal and inferior goods when income goes up?
the demand for normal goods goes up and the demand for inferior goods goes down
what are the 4 factors affecting demand?
1- the price of the good (law of demand and exceptions)
2- the price of other goods (substitutes and complements)
3- household income
4- other factors (time of the year, weather, laws, etc)
what is the only factor that can cause a mvmt along the demand curve of a good?
a change in the price of the good will cause mvmt along its demand curve
a change in a factor other than the price of the good leads to…
A change in a factor other than the price of the good leads to a shift (to the left or to the right) of the demand curve.
what is price-elasticity of demand?
price-elasticity of demand is a measure of the responsiveness of qty demanded to its price
what is the interpretation of price-elasticity of demand?
the price-elasticity of demand is the percentage change in Qd when P increases by 1%
how to compute price-elasticity of demand?
Ep = (delta Q / delta P) x P/Q
the value of the elasticity of demand depends on…
where we are on the demand function curve
what is the value of Ep when it is perfectly elastic ?
Ep = -infinite
what is the value of Ep when it is perfectly inelastic ?
Ep = 0
what is the value of Ep when it is unit elastic ?
Ep = -1
what is the value of Ep when it is relatively elastic ?
-infinite < Ep < -1
what is the value of Ep when it is relatively inelastic ?
-1 < Ep < 0
graphically, perfectly elastic demand curve are… which means…
horizontal, which means that a small change in price causes a large change in qty demanded
graphically, perfectly inelastic demand curve are… which means…
vertical, which means a change in price will not affect qty demanded
what is the income elasticity of demand (Ei)?
it is the relative change in Qd is response to a 1% change in income
if Ei>0, the good is…
If EI > 0, the good is normal
If Ei < 0, the good is …
If EI < 0, the good is inferior
what is the cross price elasticity (Ec)?
The cross-price elasticity is the percentage change in Qd of a good X in response to a 1% change in the price of another good, PY
if Ec < 0, the good X and Y are…
If Ec < 0, the goods X and Y are complements
if Ec > 0, the good X and Y are…
If Ec > 0, they are substitutes
