Download SUPPLY AND DEMAND: introduction and demand

A model of a competitive market.
This is a market in which there are many buyers and
sellers of the same good or service.
(key feature of a competitive market is that no
individual’s actions have a noticeable effect on the
price at which a good or service is sold)

When a market is competitive, its behavior is
well described by this model.

Key elements
 1. the demand curve
 2. the supply curve
 3. the set of factors that cause the demand curve to shift
and the set of factors that cause the supply curve to
shift
 4. The market equilibrium, which includes the
equilibrium price and quantity
 5. the way the market equilibrium changes when the
supply curve or demand curve shifts

Demand Schedule


Demand Curve


Is a graphical representation of the demand schedule. It
shows the relationship between quantity demanded and
price.
Quantity Demanded


It shows how much of a product consumers are willing
and able to buy at each of a series of possible prices
during a specified time period.
Is the actual amount of a good or service consumers are
willing and able to buy at some specific price.
Law of Demand

The higher the price for a good or service leads
consumers to demand less of that good or service

1.change in quantity demanded


Movement along the demand curve because of a
change in price all other factors being equal.
2. change in demand

This causes the demand curve to shift either to the
right or to the left. This happens not because of price
but because of other factors. This leads to a new
demand curve.



When economists talk about an increase in
demand they mean a rightward shift of the
demand curve; at any given price consumers
demand a larger quantity of goods or services
When they talk about a decrease in demand
they mean a leftward shift of the demand
curve; at any given price consumers demand a
smaller quantity of goods and services.
What causes the demand curve to shift?

There are 5 principal factors that cause a shift.

Substitutes


If a rise in the price of one good makes consumers
more willing to buy the other good.
Substitutes are usually goods that in some way serve
a similar function
 A rise in the price of the alternative good induces
consumers to buy the other good causing a change in
demand.

Complements


Goods that in someway are consumed together.
When the price of one good rises, the demand for its
complement will decrease and the opposite it true.

When consumers have more income, they are
normally more likely to buy a good at any given
price.


Normal Goods


The demand curve or these people will shift for most
goods. The opposite is true. Why most goods?
The demand for them increase when consumers income
rises.
Inferior Goods
Goods that demand for decreases when consumers
income rises.
 These goods are ones that are considered less desirable
than more expensive alternatives, when people can they
stop buying them


Since people have certain preferences, or tastes,
that determine what they choose to consume
and that these tastes can change economists
usually lump together changes in demand due
to




1. fads
2. beliefs
3. cultural shifts
Economist have little to say about the forces
that influence consumers’ tastes.

This has a large impact on demand.

Consumers have some choice about when to
make a purchases, current demand for a good
is often affected by expectations about future
price.


Future income
What else?


As the number of consumer increases so will
demand for goods and services
As the number of consumers decreases so will
demand.