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Supply and Demand:
Introduction to Demand
Lesson 2.5
Supply and Demand: A Model of
a Competitive Market
• Sellers and buyers constitute a “market”.
• A Competitive Market is where there are many buyers and
sellers.
• The Supply and Demand model works well for competitive
markets
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Demand Curve
Supply Curve
Factors that cause the supply and demand curves to shift
Market equilibrium, equilibrium price, equilibrium quantity
Demand
– The desire to own something, and the ability to
pay for it.
• The Law of Demand
– As prices go up quantity demanded goes down.
– As prices go down quantity demanded goes up.
Demand Schedule
Market Demand
• Demand curves can show the demand for an
individual, or for a “market” of any defined
size (classroom, CPHS, Pleasant Hill, etc.)
Demand Curve
• The demand curve is a downward sloping
line showing the inverse relationship
between quantity and price
Shifts in demand
• Shifts in demand come
from changes other
than the change in
price
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Changing technology
Seasonal changes
Good or bad news
Income and inferior goods
Consumer expectations
Population
Consumer taste and
Advertising
• Substitute and
Complimentary goods
Substitution Effect
• The substitution effect takes place when
there is a similar product which can be
substituted if the price of the original
product becomes too high.
– Butter vs. Margarine
– Coke vs. Pepsi (or any other soda, drink)
Complimentary Goods
• Some goods go naturally together. When
you buy product A, product B goes with it,
so you buy them together.
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Cereal and milk
Peanut butter and Jelly and Bread
Skis and Ski poles and Ski Boots
Flashlight and batteries
Income Effect
• As income rises, demand for “inferior”
products goes down, while demand for
superior products rise.
• Wal-Mart vs. Bloomingdales
• Generic products versus Name brands