AREC 384 price analysis demand

  1. assumptions for perfectly competitive market
    • many buyers and sellers, so no ind. buyer/seller has any influence on the market
    • homogeneous product
    • resources are completely and freely mobile (no entry/exit costs)
    • perfect knowledge
  2. behavioral assumptions for firms
    • profit maximization
    • cost minimization
    • (duals of one another)
  3. behavioural assumptions for consumers
    utility maximization subject to budget constraint (remember the 4 types of utility?)
  4. law of demand
    • "there is an inverse relationship between the quantity of a good demanded and its price"
    • ex. as prices go up, you demand less (ceteris paribus)
  5. 4 axioms of choice (demand) theory
    • 1. reflexivity (bundles of goods clearly defined)
    • 2. non-satiation (you never get "full", always want more)
    • 3. completeness (you know what the bundles are so you can compare them)
    • 4. transitivity (if you prefer A to B to C, then you prefer A to C)
  6. what is held constant when we think of demand schedules/curves?
    • economic factors (income, prices and availability of other relevant goods and services)
    • demographic factors (population, age, ethnicity)
    • tastes and preferences
  7. demand shifters
    • when some other factor relevant to the market changes
    • ex. economic factors like income, demographic factors, tastes and preferences
    • shift the whole demand curve
  8. speculative demand
    • a type of demand related to anticipated use and prices relative to current use and prices
    • you get worried about the future so you buy more now
  9. derived demand
    • demand schedules for inputs that are used to produce final products 
    • ex. demand for retail pork chops -> process have demand curve for hogs -> hog farmers have demand curve for corn -> etc.
Card Set
AREC 384 price analysis demand
lecture 2