Lecture Notes: Demand, Trade, and Elasticity

A set of practice flashcards covering the law of demand, demand shifts, elasticity, complements/substitutes, trade concepts, and course logistics mentioned in the lecture notes.

What is the law of demand?

As price falls, quantity demanded rises, and as price rises, quantity demanded falls; the demand curve is typically downward-sloping.

What is the difference between a movement along the demand curve and a shift of the demand curve?

Movement along the curve occurs when price changes while other factors stay the same; a shift occurs when non-price factors cause demand to change at every price level.

What does a rightward (upward) shift in the demand curve indicate at a fixed price level?

An expansion or increase in demand; higher quantity demanded for the same price.

What are some factors that can cause a demand curve to shift to the right (expand in demand)?

Higher future income expectations, a successful marketing campaign, and an increase in the number of buyers.

What is price elasticity of demand?

The percentage change in quantity demanded divided by the percentage change in price; typically negative and measures sensitivity of quantity demanded to price changes.

How are elastic and inelastic demand defined?

Elastic demand: elasticity magnitude greater than 1 (quantities change more than price). Inelastic demand: elasticity magnitude between 0 and 1 (quantities change less than price). Perfectly elastic or perfectly inelastic are the extreme cases.

What are complements in the context of demand?

Two goods that are often consumed together; a price increase in one reduces the demand for the other.

What are substitutes in the context of demand?

Two goods that can replace each other; a price increase in one raises the demand for the other.

What does expansion of demand mean?

An increase in demand at all price levels, causing the demand curve to shift to the right (or upward).

What does q^e stand for in the demand discussion?

Quantity demanded—the amount buyers are willing to purchase at a given price.

What is p-bar used to illustrate in the demand analysis?

A fixed price level used to show how a shift in the demand curve changes quantity demanded at that price.

What is the intuition behind the demand curve’s negative slope?

As price falls, consumers can afford to buy more, so quantity demanded increases; the curve slopes downward.

What is the consequence of a rightward shift in demand for every price level?

It leads to a higher quantity demanded at each price, indicating an expansion of demand.

What is the main message about trade from last class?

Trade allows specialization based on comparative advantage, yields a bigger total output (a bigger pie), and allows everyone to consume more; it is not zero-sum.

What is comparative advantage?

Producing goods at lower opportunity costs relative to others, leading to gains from specialization and trade.

What is the role of the Production Possibilities Frontier (PPF) in these notes?

Used to visualize opportunity costs; the class will abstract away from it going forward.

What is the exam focus in this course, and what is allowed on exams?

Emphasis is on applying concepts to scenarios rather than memorization; a cheat sheet or reference sheet is allowed.

Why are handwritten cheat sheets allowed, and what is their purpose?

To reduce reliance on memorization so students can reference concepts while demonstrating understanding.

Where and when are the TA office hours?

Tuesdays and Thursdays, 5:00–6:00 PM in Kirby basement; official details available in the syllabus and Canvas announcement.

What are the homework submission guidelines?

Submit as a single PDF file, scanned if necessary (via Dropbox/Google Drive or scanning app), with all pages in one document.