340 Module 2 Re-cap

For the Web Assignment about those strange goods: Giffen Goods are those that are necessities to those on low incomes (staple food items in poor countries). With a staple (like bread) as the price goes down, people may buy less and shift money to other goods they usually cannot afford. With Veblen Goods, the perceived status in buying the item is what matters. For instance, would people serve caviar (fish (sturgeon) eggs!!!!!!) if it was 2 cents an ounce!!!

For the Written Assignment (Chapter questions): This is always confusing work. I find that one of the downsides of the on-line courses is the absence of in-class visual presentation of the supply and demand principles and graphs. You just have to really slog it out through the text. (I have summarized below the main points these questions were trying to elicit):

1. An increase in the excise tax shifts supply in. How much price goes up depends on the elasticity of demand (how sensitive buyers are to changes in price).

2. A decrease in supply of oranges can be caused by bad weather, etc. This will push prices up and cause buyers to seek substitutes.

3. More firms producing at lower costs leads to lower prices.

4. Any restrictions on imports cause not only higher prices for the imported good, but an increase in demand for the domestic good (substitution effcet) which causes higher prices.

5. Shifts in demand are caused by non-price factors (the snow storms!). Change in quantity demanded is caused by a change in the price of the product itself.

6. For normal goods, an increase in income leads to an increase in demand.

7. It all depends on the elasticities of demand (sensitivity to price changes) and what has happened to the relative price of the good.

8. There will be increases in demand for substitutes for Florida oranges- prices will rise.

9. Do you have any use for more than one of today’s papers? The marginal utility of a second paper is close to zero.

You can now see a full summary of your exam.

“Original document by Peter Turner licensed CC BY”