I2M: Chapter 3 / 4

• Tastes and preferences
• Income and wealth
• Availability and prices of related goods
• Buyer’s expectations of the future

• Extensive margin: Newspapers: as the price goes down the number of people willing to purchase a newspaper increases (each buyer buys at most one unit).
• Intensive margin: Soda Cans: as the price goes down individuals are willing to purchase more units
• Both of the above: As the price of cans goes down more people buy sodas and some buyers buy more units as well.

• Input prices
• Technology
• Number and scale of sellers
• Sellers’ expectations about the future

• Extensive margin: as the price for a smartphone goes up the number of students willing to sell theirs increases (each seller sells at most one unit)
• Intensive margin: as the price for a smartphone goes up the producers each produce and sell more units
• Both of the above: When the price goes up more competitors enter the market and certain sellers sell more units.

The variable b is taken from the curve: Q = a-bP

If the elasticity is greater than 1, then demand is said to be elastic (ex: olive oil --> many alternatives). If the elasticity is infinite, then demand is perfectly elastic.

If the elasticity is smaller than 1, then demand is said to be inelastic (ex: cigarettes --> addictive product). If the elasticity is zero, then demand is perfectly inelastic.

If the elasticity is equal to 1, then demand is said to be unit-elastic.