Download The Demand Curve

Econ 206(A) Tutorial 2
The Demand Curve
Price, p
A
p1
Demand, D
0
q1
Quantity, q
Seminar Topic 1
1.
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•
•
•
•
What Factors Determine the Demand for a good?
The price of the good or service x: px
Consumer tastes: T
Consumer incomes: Y
The prices of substitutes: py
The prices of complements: pz
Can be expressed as:
Dx = f (px, T, Y, py, pz)
Shifts Along a Demand Curve (changes in
price of good)
Price, p
B
p2
A
p1
Demand, D
0
q2
q1
Quantity, q
Shifts of a Demand Curve (Changes in other factors – taste,
income etc)
Price, p
p1
A
B
D’
Demand, D
0
q1
q2
Quantity, q
Supply
• Relationship between price of a
good/service and the amount produced
by firms.
• Higher the price, the more
goods/services produced.
Diagram of the Supply Curve
Price, p
Supply, S
p1
0
C
q1
Quantity, q
Determinants of Supply
What determines supply of a good/service?
• The price of the good or service x: px
• Any changes in the price of inputs, this includes:
• raw materials, capital, labour etc
• Changes in production technology
Shifts Along the Supply Curve
Price, p
Supply, S
C
p1
p2
0
F
q2
q1
Quantity, q
Outward Shifts of the Supply
Curve
Price, p
Supply, S
p1
0
C
q1
S’
F
q2
Quantity, q
Market Equilibrium (Supply = Demand)
Price, p
Supply, S
p*
E
Demand, D
q*
Quantity, q
Seminar Topic 2
2. If the demand for a good increases, will
more be supplied?
Seminar Topics
3. What are the major assumptions economists
make concerning consumer behaviour?
–
Comparability (good A & B can be compared and ranked in terms of preference)
–
Non-Satiation
–
Consistency (if A>B, B>C then A>C)
–
Convexity (diminishing marginal utility of consumption)
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Independent utilities (Other individuals consumption does not affect your utility)
– what about `positional’ goods?