Lecture Notes

Announcements

• Office hours listed for this week.
• Moving into Chapter 8 of the textbook.
• Next lab session: Thursday and Friday.
• Lab Homework 5 due.
• Tutoring available Wednesday and Thursday.

Overview of Consumer Behavior and Demand

• Consumer behavior focuses on market demand.
• Demand: Willingness and ability to pay for a good.
• Demand is a relationship between quantity demanded and market price.
• Quantity demanded is a function of price and vice versa.
• Both price and quantity demanded are dependent variables.

Representing Demand

• Individual Demand:
  • Demand schedule: Table showing prices and quantity an individual is willing to purchase.
• Market Demand:
  • Sum of all individual demands.
  • Represented by summing identical individual demands.

Demand Curve

• Graph of price vs. quantity demanded.
• Typically downward sloping: Law of Demand.
  • Inverse relationship between price and quantity demanded.
• Generally assumed linear for simplicity but can be nonlinear.

Movements and Shifts in Demand

• Movement along the Demand Curve:
  • Change in quantity demanded due to price change (own price).
• Shift in Demand Curve:
  • Change in demand due to other factors (e.g., prices of related goods, income).
  • Increase in demand shifts curve right; decrease shifts it left.

Determinants of Demand

1. Prices of Related Goods:
   • Substitutes: Goods that can replace each other.
     • Example: Pork and chicken.
   • Complements: Goods consumed together.
     • Example: Peanut butter and jelly.
2. Tastes and Preferences:
   • Changes in consumer preferences can shift demand.
   • Example: Food safety concerns can decrease demand.
3. Expected Future Prices:
   • Expectations of future prices affect current demand.
   • Example: Expected decrease in future prices may decrease current demand.
4. Population:
   • Increase in population increases demand.
5. Income:
   • Normal Goods: Demand increases with income.
   • Inferior Goods: Demand decreases as income rises.

Engle's Law

• As income increases, the proportion of income spent on food decreases.
• Impacts the agricultural economy by reducing its relative size.

Examples and Applications

• Impact of expected future prices on agricultural contracts.
• Role of substitutes and complements in market dynamics.

Conclusion

• Understanding demand and its determinants is crucial for businesses to strategize.
• Changes in demand and supply dynamics significantly affect market trends.