equilibrium

equilibrium - Demand Quantity demanded: the amount...

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1 Demand • Quantity demanded : the amount consumers demand at a particular price • Demand : the entire relationship between price and quantity demanded – Tells us the quantity of a good that buyers wish to buy at each/every price – You will see it in different forms • in a schedule/table • as a curve/line on a graph • as an equation Law of Demand • Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded • Stated differently: As price goes down, the quantity consumers wish to buy will increase • Example: The Corrupt Professor – Quantity demanded @ … – $0.01, $1, $10, $50, $100, $200, $500 ? Law of Demand • Demand is downward-sloping. – It would capture the information the same the other way, but economists ALWAYS plot: • Price on the Y axis • Quantity on the X axis • Why do buyers purchase more at lower prices, and less at higher prices? – Substitution effect – Income effect Law of Demand (in terms of reservation prices) • Benefit buyer receives from the good can be measured by the reservation price • Cost to the buyer is its market price • If the reservation price (benefit) exceeds the market price (cost) the consumer will purchase the good • At higher prices, benefit will exceed cost for a smaller quantity than at lower prices The Demand Curve Price (Dollars per A) Quantity (Number of As) D Interpretation of Demand (ways to read the demand curve) • Horizontal interpretation – Quantity demanded at a given price • Vertical interpretation – Reservation price of the marginal buyer (or marginal unit) – Buyer’s reservation price: the largest dollar amount the buyer would be willing to pay for a good (benefit the buyer receives from the good)
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2 Change in Demand Change in the entire relationship between price and quantity demanded. An increase in demand means that the quantity demanded is higher at every price. A decrease in demand means that the quantity demanded is lower at every price Change in quantity demanded vs. a change in demand • Change in quantity demanded – Movement along the demand curve that occurs in response to a change in price • Change in demand – A shift of the entire demand curve Movements along the curve vs. shifts in the curve Price (Dollars per fish taco ) Quantity (Nu mber of fish tacos per week) D Increase in quantity demanded Decrease in quantity demanded D ecrease in demand Increase in demand Factors that lead to changes (shifts) in demand Prices of related goods Expected future prices Income
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equilibrium - Demand Quantity demanded: the amount...

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