EC 202 (Introduction To Macroeconomics) NOTES EXAM 2
all what you need to know Michigan State University
Expectations
- Future income
- Future availability, if you expect that a good won't be available in the
future, that can increase your demand today
- Future Prices, if you expect prices to decrease in the future, that can
reduce your demand today
Substitutes
-often, you are not deciding between buying one good and buying nothing all
-instead you are deciding whether to buy one good, several, or none at all
-Substitutes: Goods that are viewed as replacements of another
example : if the price of uber increases, people are more likely to want to use lyft,
therefore the demand for lyft increases and the demand for uber decreases
Iclickers
Q: Suppose ice cream and pies are substitutes. When the price of ice cream
decreases, what will happen to the consumption of pie?
A: Quantity of pie consumed decreases
Q: Due to a tax on dairy farms, the price of ice cream goes up. Following this price
increase, you observe a reduction in the number of pies sold. This suggests that pie
and ice cream are
A: Complements
Complements
-Goods that are used with one another
-some goods are frequently purchased or used
together Ex: peanut butter and jelly
Ex: As an extreme example, consider left shoes and right shoes. Suppose a shoe
store started selling them separately. You would not care about the individual
prices of left shoes and right shoes, because you buy them in pairs.
An increase in right-shoe prices would lead you to purchasing fewer pairs of shoes
and, therefore, fewer left shoes, even though the price of left shoes didn't change.
Peanut butter and jelly are often consumed separately, but the idea holds. If
peanut butter gets more expensive, PB&J sandwiches get more expensive, so you
can eat fewer of them, so you consume less peanut butter and less jelly.
-Suppose the price of peanut butter increases:
The demand curve for peanut butter, price goes up and demand goes down
,The demand for jelly decreases, even if the price stays the same because people
will stop buying both.
Missed Homework Questions Review
1. Nick likes to play laser tag. On Saturday nights, his favorite establishment
has a special: For $20, you can play as many games as you like. The special
lasts for 5 hours, and each game lasts 30 minutes, so Nick can play a total of
10 games if he wishes.
It costs $20 to play one game, all games after cost 0. Therefore the graph shows
$20 until after the first game, a small horizontal line on the left.
2. Penny is deciding how big of a house to build. She gets decreasing marginal
benefits from house size. The builder charges $400 per square foot. Penny
decides that she will build a 1,500 square foot house. Then, she learns that
the builder offers a discount, where the first 1,000 square feet are half
price($200 per square foot). How big of a house would Penny choose to
build after learning about the discount?
-Graph marginal benefits, the marginal cost without discount, the marginal
cost with discount
The marginal benefit graph would be decreasing and downward
sloping. The marginal cost, without discount would be a
constant, like at $400
Both of these graphs would intersect because at $400, the marginal cost is
equivalent to the marginal benefit.
With the discount, the first 100 square feet would be $200, while the
remaining 500 would be 400.
On the new graph with the discount, the graphs still intersect at 1500 square
feet.
3. Hank visits Buffalo Wild Wings. He pays $5 and eats 10 chicken wings. His
benefit from the first 10 wings is $3 each. He buys a plate of 10 more wings.
After eating two chicken wings, Hank realizes that he is getting full and will
only get $0.25 worth of enjoyment per wind for each of the last 8 wings.
What should Hank do?
Class 8: Demand 3
Determinants of
, Demand Normal and
Inferior Goods
all what you need to know Michigan State University
Expectations
- Future income
- Future availability, if you expect that a good won't be available in the
future, that can increase your demand today
- Future Prices, if you expect prices to decrease in the future, that can
reduce your demand today
Substitutes
-often, you are not deciding between buying one good and buying nothing all
-instead you are deciding whether to buy one good, several, or none at all
-Substitutes: Goods that are viewed as replacements of another
example : if the price of uber increases, people are more likely to want to use lyft,
therefore the demand for lyft increases and the demand for uber decreases
Iclickers
Q: Suppose ice cream and pies are substitutes. When the price of ice cream
decreases, what will happen to the consumption of pie?
A: Quantity of pie consumed decreases
Q: Due to a tax on dairy farms, the price of ice cream goes up. Following this price
increase, you observe a reduction in the number of pies sold. This suggests that pie
and ice cream are
A: Complements
Complements
-Goods that are used with one another
-some goods are frequently purchased or used
together Ex: peanut butter and jelly
Ex: As an extreme example, consider left shoes and right shoes. Suppose a shoe
store started selling them separately. You would not care about the individual
prices of left shoes and right shoes, because you buy them in pairs.
An increase in right-shoe prices would lead you to purchasing fewer pairs of shoes
and, therefore, fewer left shoes, even though the price of left shoes didn't change.
Peanut butter and jelly are often consumed separately, but the idea holds. If
peanut butter gets more expensive, PB&J sandwiches get more expensive, so you
can eat fewer of them, so you consume less peanut butter and less jelly.
-Suppose the price of peanut butter increases:
The demand curve for peanut butter, price goes up and demand goes down
,The demand for jelly decreases, even if the price stays the same because people
will stop buying both.
Missed Homework Questions Review
1. Nick likes to play laser tag. On Saturday nights, his favorite establishment
has a special: For $20, you can play as many games as you like. The special
lasts for 5 hours, and each game lasts 30 minutes, so Nick can play a total of
10 games if he wishes.
It costs $20 to play one game, all games after cost 0. Therefore the graph shows
$20 until after the first game, a small horizontal line on the left.
2. Penny is deciding how big of a house to build. She gets decreasing marginal
benefits from house size. The builder charges $400 per square foot. Penny
decides that she will build a 1,500 square foot house. Then, she learns that
the builder offers a discount, where the first 1,000 square feet are half
price($200 per square foot). How big of a house would Penny choose to
build after learning about the discount?
-Graph marginal benefits, the marginal cost without discount, the marginal
cost with discount
The marginal benefit graph would be decreasing and downward
sloping. The marginal cost, without discount would be a
constant, like at $400
Both of these graphs would intersect because at $400, the marginal cost is
equivalent to the marginal benefit.
With the discount, the first 100 square feet would be $200, while the
remaining 500 would be 400.
On the new graph with the discount, the graphs still intersect at 1500 square
feet.
3. Hank visits Buffalo Wild Wings. He pays $5 and eats 10 chicken wings. His
benefit from the first 10 wings is $3 each. He buys a plate of 10 more wings.
After eating two chicken wings, Hank realizes that he is getting full and will
only get $0.25 worth of enjoyment per wind for each of the last 8 wings.
What should Hank do?
Class 8: Demand 3
Determinants of
, Demand Normal and
Inferior Goods
