Download Demand Curve

SUPPLY AND
DEMAND
LAW OF DEMAND
PRICES CHANGE AND
PEOPLE BUY MORE OR
LESS OF A PRODUCT.
MUST BE WILLING
AND ABLE TO BUY
DIMINISHING
MARGINAL UTILITY
UTILITY
= SATISFACTION
BUYING STOPS WHEN
PRICE > UTILITY
THE DEMAND CURVE
AS PRICE GOES UP,
QUANTITY DEMANDED
GOES DOWN
Demand Curve
Price per slice (in dollars)
3.00
2.50
2.00
1.50
1.00
.50
0
0
50
100
150
200
250
Slices of pizza per day
300
350
DEMAND PRACTICE
A LOCAL VIDEO STORE BEGINS TO
DROP ITS PRICES. WHEN DVD’S
RENT FOR $4.00 APIECE, THE
STORE RENTS 200 IN A WEEKEND.
FOR EVERY $0.50 THE PRICE
DROPS, THE STORE RENTS 25
MORE DVD’S. DRAW A SCHEDULE
AND CURVE ILLUSTRATING THIS.
SHIFT OF THE CURVE
CETERIS PARIBUS
SUBSTITUTES
COMPLEMENTARY GOODS
POPULATION
DEMAND CURVE SHIFTS
CONSUMER TASTES AND
ADVERTISING
INCOME (NORMAL GOODS
VS. INFERIOR GOODS)
ELASTICITY
RESPONSIVENESS
OF CONSUMERS TO
PRICE CHANGE.
DETERMINANTS OF ELASTICITY
SUBSTITUTES
PERCENTAGE
OF BUDGET
TIME TO ADJUST TO
PRICE CHANGE
NECESSITY V. LUXURY
FIGURING ELASTICITY
ELASTICITY = % CHANGE IN
QTY. DEMANDED
% CHANGE IN PRICE
ELASTICITY OF DEMAND
YES = ELASTIC
NO= INELASTIC
DELAY
PURCHASE?
SUBS?
BIG % OF
INCOME?
CORN GAS INSULIN
LAW OF SUPPLY
AS THE PRICE RISES
FOR A GOOD, QUANTITY
SUPPLIED RISES
PROFIT INCENTIVE
HIGHER
PRICES
MAKE US WANT TO
SELL MORE!
PRODUCTION COSTS
FIXED
COSTS
VARIABLE COSTS
TOTAL COSTS
MARGINAL COST
LAW OF DIMINISHING
MARGINAL RETURNS
MARGINAL
PRODUCT
OF LABOR
DECIDING OUTPUT
 PROFIT=
REVENUE – COST
 MARGINAL REVENUE =
MARGINAL COST
 SHUT DOWN DECISION
REVENUE<VARIABLE COST
Market Supply Curve
3.00
Supply
Price (in dollars)
2.50
2.00
1.50
1.00
.50
0
0
500
1000
1500
2000
Output (slices per day)
2500
3000
3500
ELASTICITY OF SUPPLY
LESS TIME =
LESS ELASTIC
SUPPLY CURVE SHIFTS
PRICE
OF INPUTS
TECHNOLOGY
NUMBER OF FIRMS
SUPPLY CURVE SHIFTS
GOVERNMENT
FUTURE
INFLUENCE
PRICE
EXPECTATION
IMPORT RESTRICTIONS
SUPPLY CURVE PRACTICE
A local shoe factory produces 100
pairs of shoes each week, which sell
for $20 a pair. Demand is high, and
as the price rises, the factory
produces 25 more pairs for every
$5 increase. Draw a supply
schedule and curve illustrating this.
EQUILIBRIUM POINT
$800
$600
$400
E
Price
$200
0
supply
Demand
1
2
3
QUANTITY
4
5
CHANGE IN EQUILIBRIUM
EQUILIBRIUM POINT
$10
Price
$8
E
E2
c
supply
b
$6
New
demand
$4
Demand
1
2
3
QUANTITY
4
5
SHORTAGE: SUPPLY<DEMAND
SURPLUS: SUPPLY>DEMAND
GOVERNMENT INTERVENTION
PRICE
CEILINGS
RENT CONTROL
PRICE FLOOR
MINIMUM WAGE
PRICES IN THE FREE MARKET
INCENTIVES
SIGNALS
FLEXIBILITY
PROFIT
INCENTIVE