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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
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AP Economics
Mr. Bernstein
Demand Schedule and Demand Curve
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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”
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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
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AP Economics
Mr. Bernstein
A Shift in Demand
is different from
movement along the
Demand Curve!!
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AP Economics
Mr. Bernstein
A Shift in Demand is
different from
movement along the
Demand Curve!!
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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
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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
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AP Economics
Mr. Bernstein
MERIT
• Market size or More buyers
• Expectations
• Related prices (substitutes, compliments)
• Income changes
• Taste
Demand Shifters:
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