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AP Economics Mr. Bernstein Module 5: Supply and Demand Introduction and Demand October 1, 2014 AP Economics Mr. Bernstein Competitive Markets • An institution which brings together buyers and sellers of particular goods or services • Local, national or international • Face-to-face, electronic or other impersonal • Assumption: no buyer or seller so large they affect pricing • Will look at markets which are not perfectly competitive later in the course 2 AP Economics Mr. Bernstein Demand Schedule and Demand Curve 3 AP Economics Mr. Bernstein Law of Demand • All other things equal, as price increases the quantity demanded falls • So there is an inverse relationship between price and quantity demanded • Plotted on a graph, the law of demand infers a downward sloping demand curve • Note: It will be important to distinguish between a change in the “quantity demanded” and a change in “demand” 4 AP Economics Mr. Bernstein Demand Shifters • Factors which change demand other than price • An increase in demand shifts the demand curve to the right • A decrease in demand shifts the demand curve to the left 5 AP Economics Mr. Bernstein A Shift in Demand is different from movement along the Demand Curve!! 6 AP Economics Mr. Bernstein A Shift in Demand is different from movement along the Demand Curve!! 7 AP Economics Mr. Bernstein Demand Shifters • Prices of related goods • Substitute Goods’ price has positive relationship with demand • Complimentary Goods’ price has negative relationship with demand • Income • Normal Goods have positive relationship with income • Inferior Goods have negative relationship with income 8 AP Economics Mr. Bernstein Demand Shifters, cont. • Tastes • Positive relationship with demand • Expectations • Expectations of future price changes • Expectations of future earnings changes • Expectations of future product shortages • Number of buyers • Example: Demographic changes • Example: Promotions and advertising 9 AP Economics Mr. Bernstein MERIT • Market size or More buyers • Expectations • Related prices (substitutes, compliments) • Income changes • Taste Demand Shifters: 10
