Tuesday, February 07, 2006

Demand

My intent for this is to allow you the chance to ask questions you may not have had time for or wanted to in class. You can also comment on information if you prefer, or if you don't have questions. This will become required by next week - 2 posts per week. They will go in as "comments", and will be able to be viewed by everyone else, hopefully stirring up some discussion. "Week" will be defined as Monday 12:00 am through Sunday 11:59 pm. And yes, you can make them both at the same time if you need to - but they must be substantially different. And yes, you may answer someone else's question. I may not check daily, so feel free to (PLEASE!) answer someone else's questions! :)

Today, we looked at what constitutes Demand and the difference between quantity demanded and demand. This is really important - I know it seems trivial, but the difference is something that they've looked at on the national exam - and if you're writing your essay and you use the wrong one, you will not get the point for it.

Here is the animated .gif I used in class today: http://www.reffonomics.com/demand1.html

And here is what you'll look at tomorrow:
http://apecon.us/currentwork/substitutionincome.gif
http://www.reffonomics.com/determinatesofdemand.html

We'll go over them in class if I'm here tomorrow, if not, then we'll go over them on Thursday.

So - a question for you. Let me see...umm... We'll go for three. See what you can do with these. Do you agree or disagree, and why?

1. The price of a good rises, causing the demand for another good to fall. The two goods are therefore substitutes.

2. The price of good A falls. This causes an increase in the price of good B. Goods A and B are therefore complements.

3. Two normal goods cannot be substitutes for each other.


What do you think?

9 comments:

NicolleM said...

1. I would say this would be false, because if they were subsititues, when the price of the first good rose, the demand of the second good would rise as well. These would be complements.

2. False; Along with my first answer, when they are complements, a fall in the price of one good raises the demand for another good, not the price. These would be substitutes.

3. True because an inferior good is the substitute for a normal good.

cranjos said...

1.) I agree with Nicolle, because if the price of a good rises, the demand of another will increase, not decrease.

2.) The price of Good A falling will most likely lead to an increase in its demand, not a rise in the price of Good B.

3.) I again agree with Nicolle, an inferior good is the substitute of a normal good. I don't think that substitutes can both be normal goods, I think that one of the goods needs to be inferior to the other.

forsnic said...

1. i dont really understand this one. lol
2. false; because a decrease in price of A would affect the demand for good B not a price increase.
3. true; because inferior goods would be used as substitutes for normal goods.

forsnic said...

i just thought of a question.
ok so.
if a person purchases more normal goods as their income increases...
does the demand for that good increase or decrease?

schmid said...

1. I believe the statement is false. As the price of item A increases there is going to be less quanity demanded. Since the demand for item B fell, item A and B must be complements. Since item A and B are directly related and both of their demand quanities fall they must be complements. In order to be substitutes, item A and B would need to be indirectly proportional (as price of A increases and therefore its quanity of demanded decreases, item B's demand would increase not decrease as a result of being substituted for item A).

2. False; As I said in the previous answer, complements are directly related and therefore as the price of good A falls, the price of good B would also fall. Since good B increases in price as good A decreases in price the two are substitutes.

3. True; an inferior good, which is purchased as income falls or vise versa, is a substitute for a normal good, which is purchased more as income increases or vise versa.

schmid said...

In regards to Nicki's question:
I think the demand would increase since the person would be willing to pay a higher price. As their income increases the price of a good becomes a smaller and smaller percentage of their income; and therefore the demand would increase

Annie said...

1. False because if the price of a product rises it may mean a decrease in demand and therefore the demand for the second good would be increased. One is substituted for the other based on cost.

Annie said...

2. this is false because if the two were complements then if the price of good a falls the price of good b would also fall because you need both otherwise there's no point to buying one

gorman said...

1the goods are most likely complements not substitutes
2i think one and 2 results should be switched around because this one is most likely a substitute
3i have to disagree with the group about this one...what one person considers as a normal good could be an inferior good to someone else...it is all about preferences