Download New Demand Curve

Markets
A market is where
buyers and sellers
meet to exchange
products
These buyers and
sellers negotiate a
price that each is
happy with, and
then exchange the
good
The buyers of products
make up the DEMAND
for the good
The sellers of
products make up the
SUPPLY of the good
The MARKET PRICE for a good is the price where the
Number of Buyers = Number of Sellers
Supply
Market or
Equilibrium
Price
Demand
number of buyers = number of sellers
Market or Equilibrium Quantity
A market can react to changes in either the buyers or the sellers
These changes can cause one of the curves to move
Supply
Market or
Equilibrium
Price
Demand
number of buyers = number of sellers
Market or Equilibrium Quantity
If all the BUYERS
change their minds about
buying the product, the
Demand curve will move
If all the SELLERS change
their minds about buying
the product, the Supply
curve will move
When an entire curve moves, it is known as a
SHIFT
of the curve
A Shift of
a curve will
cause the
Equilibrium
Price and
Equilibrium
Quantity
for the
Market to
change
Supply
New Market or
Equilibrium
Price
Original Market
or Equilibrium
Price
New
Demand
Curve
Demand
Original Market
or Equilibrium
Quantity
New Market or
Equilibrium
Quantity
This is a shift of the Demand curve
Either the
Demand curve
can shift or
the Supply
curve can shift
The things that can shift a
curve are called
DETERMINANTS
We are going to focus on the
Demand Curve first and how it
impacts the Equilibrium Price
and Quantity for a good
Buyers of
products
make up the
for the
good
Need a definition?
Demand for a good consists of all
the buyers who are willing and able
to purchase the good at various
prices
Here’s an example of Demand….
Let’s look at the Demand
for Bosco Sticks in a
classroom of 32 students
Price
Quantity
Demanded
$0
30
At a price of $0 (no
price), there are 30
students willing to buy
Bosco Sticks
The other two students
choose not to eat Bosco
Sticks, even if they do
not have to pay for
them
(these 2 students are not part
of the Demand for Bosco
Sticks)
At different
prices, there are
different
numbers of
buyers for the
Bosco Sticks
As the price of the
Bosco Sticks
increases, fewer
and fewer buyers
want to purchase
them
Price
Quantity
Demanded
$0
.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
30
28
25
20
12
8
4
3
1
A chart with price and quantity data is
called a Demand Schedule
If you put the
Demand Schedule
information on a
graph, it would
look like this:
Price and Quantity
Demanded are
INVERSELY related
If price rises, the number
of buyers decreases
If price falls, the number
of buyers increases
Price
D
Quantity
As you can see,
the Demand
curve slopes
DOWNWARD
This relationship is
called the
Sometimes, things
cause every person
to change their
willingness or ability
to buy a good
This means
that we have
new data for
our demand
curve
This will cause us to draw
a NEW demand curve to
show the changes in
willingness and ability
Let’s look at the Bosco example again…
What if the surgeon general found that eating Bosco
Sticks prevented cancer???
Old Demand Schedule
Price
Quantity
Demanded
New Demand Schedule
We are
assuming
that
everyone
will want
more Bosco
Sticks…now
they’re
good for
you!!!
Price
Quantity
Demanded
$0
32
.50
30
1.00
27
1.50
23
2.00
18
2.50
14
3.00
10
$0
30
.50
28
1.00
25
1.50
20
2.00
12
2.50
8
3.00
4
3.50
3
3.50
7
4.00
1
4.00
3
Since the
quantity
demanded has
changed at
every price, we
say that there
has been a
A Change
in Demand
causes
the
demand
curve to
shift or
move
Quantity Demanded of Bosco Sticks
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Quantity
Demanded of
Bosco Sticks
D1
D
0
5
10
15
20
25
30
This graph
shows an
increase in
Demand
35
This is shown by drawing a new curve
and labeling it as D plus a number
D1
D
D
D1
Increase in Demand
•New demand curve is
to the right of the
original
•It moves towards
the bigger numbers in
the number line
Decrease in Demand
•New demand curve is
to the left of the
original
•It moves towards
the smaller numbers
in the number line
What causes a Demand
curve to shift??
There are 4
categories of
things that will
cause a Demand
curve to shift.
These categories
are called
Determinants…
It’s easy to
remember the
determinants if
you use this
mnemonic device
These are
goods that
are used
together, like…
Peanut Butter
and Jelly
If the price of
one good
changes, it
impacts the
Demand of the
other good
Oreos and
Milk
If the Price of peanut butter
increases, the quantity demanded
of the peanut butter decreases
This causes a decrease in the
Demand for jelly
(if people buy less peanut butter, they will
need less jelly)
The reverse is true also…
Goods that can
be used in place
of each other
If the price of Pepsi
increases, the quantity
demanded of Pepsi
decreases
This causes an increase in
the Demand for Coke
like Coke
and Pepsi
If the income
of the
consumers
changes, it
changes their
ability to buy
goods
An increase in consumer
income results in an increase
in Demand for goods like
cars or televisions
A decrease in consumer
income results in a decrease
in Demand for goods
Things like changes in income taxes or
inflation rates will impact consumer income
Any of these
items will cause a
good to change in
popularity, which
will result in a
change in
Demand
If a good is more popular, the
Demand for it will increase. If
it is less popular, Demand will
decrease
•New information such as impact on
health
•Trends are things like fads (Rubik’s
Cubes)
•Number of Consumers: more
consumers = more demand and vice
versa
Add info about how D slopes downward
How can you tell if there
is a change in Demand or
a change in Quantity
Demanded?
Use the flow chart
to help you
Is there a price change?
YES!
NO!
Is the price change for the good
being measured on the graph?
YES!
This is a change
in Quantity
Demanded
You should move
along the curve
NO!
It’s a change in Demand
You should shift the
curve appropriately
The determinant is
either Complementary
Goods or Substitute
Goods
It’s a change in
Demand
You should shift
the curve
appropriately
The determinant
is one of the
following:
•Attitudes, Trends,
Number of Consumers
•Income of Consumers
When the price of the
Bosco Sticks changed,
the number of buyers
changed.
Economists call this a…
Price
Quantity
Demanded
$0
.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
30
28
25
20
12
8
4
3
1
If we put this data on a graph, it looks like this….
Quantity Demanded of Bosco Sticks
4.5
4
3.5
3
is always
2.5
located on
2
this axis
1.5
1
0.5
0
Quantity
Demanded of
Bosco Sticks
Price
0
5
10
15
20
25
Quantity
Is always located
on this axis
30
35
The line is
called the
Demand
Curve and
always slopes
Downward
If the price of the good
changes, it causes a
change in quantity
demanded….
On the graph, this is a
movement along the
curve from one point to
another
If the price
falls from P1 to
P2
P1
P
The quantity
demanded will
increase from
QD1 to QD2
P2
D
QD1
QD2
Q