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Layla’s PPF

# Constructing a PPF

Ted’s PPF

## Who has the comparative advantage in giving lectures? In writing? (Hint: You need to calculate the opportunity cost of each activity for each actor.)

Economist
Opportunity Cost of
Giving Lectures
Opportunity Cost of
Writing Pages
Layla
3 pages/lecture
1/3 lecture/page
Ted
6 pages/lecture
1/6 lecture/page

# Demand Schedules and Quantity Demanded

## Demand curve: A curve that shows the relationship between the price of a product and the quantity of the product demanded.

A demand schedule and a
demand curve

# Demand Curve and Market Demand

## Market demand: the demand by all the consumers of a given good or service.

A demand schedule and a
demand curve

# When drawing the demand curve, we assume ceteris paribus – all variables except price and quantity are assumed to be held constant.

A demand schedule and a
demand curve

# The Law of Demand

## Implication: Demand curve slopes downward

A demand schedule and a
demand curve

# A shift to the left (D 1to D 3) is a decrease in demand.

Shifting the demand curve

P
1
Q 2
Q 1
Q 3

# Change in Income of consumers

## A good for which the demand decreases as income rises, and increases as income falls.

Effect of increase in income, if good is normal

Effect of increase in income, if good is inferior

# Change in the Price of Related Goods

## Goods and services that are used together.

Effect on demand for Big Macs, if price of Whopper increases

Effect on demand for Big Macs, if price of McDonald’s fries increases

# Change in Demand vs. Change in Quantity Demanded

## This is a change in demand.

A change in demand versus a change in quantity demanded

• # b. When one rock concert costs \$125, this individual goes to five of them per year.

## On the graph below, draw the direction of change for the demand curve for concert tickets when consumers' incomes rise, ceteris paribus. Assume that concert tickets are a normal good.

Price of Rock Concerts
(\$)
D1

## On the graph below, draw the direction of change for the demand curve for concert tickets when consumers' incomes rise, ceteris paribus. Assume that concert tickets are a normal good.

D2
Price of Rock Concerts
(\$)
D1