Comparative Statics: What things impact how much we buy.
(1) When the price changes, you move up and down the demand curve.
(2) Changes in demand, not quantity demanded - things that might change, other than the price, which impact consumption choices: (1) Changes in income - when you get more income, it doesn't mean you'll consume more of everything, (2) prices of other things may change, (3) expectations change - expectations about the price of burritos will impact our decision to consume burritos, (4) tastes might change - your preferences might change, and (5) the # of participants - adding consumers will change.
Normal Goods - when income increases, quantity demanded increases.
Inferior Goods - when income increases, quantity demanded decreases.
Substitute Goods - As the price of good X increases, the demand of good Y increases.
Compliment Goods - As the price of good X increases, the price of good Y increases.
Quantity Demanded: how much of a good we consume as a function of our ability and willingness to pay.
Elasticity
Law of demand tells us as tradeoffs get worse, we do less, but when tradeoffs get better, we do more.
For goods, when your consumption is very response to a change in its price we say the good is elastic. When prices change widely but your consumption does not change, a good is said to be inelastic.
We can measure elasticity using Own Price Elasticity of Demand:
m = %change in quantity demanded / %change in price. If m = 2. Then if the price of the good incases 10%, you consume 20% less of that good.
-Rizzo
Daniel Gaona
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