Lecture 02 - ECO100

Lecture 02 - ECO100 - Introduction to Economics Lecture 2:...

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© Gustavo Indart Slide 1 ECO 100Y ECO 100Y Introduction to Introduction to Economics Economics Lecture 2: Lecture 2: Demand and Supply Demand and Supply
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© Gustavo Indart Slide 2 The Quantity Demanded The Quantity Demanded ± Quantity demanded of a commodity is the amount that consumers plan to buy in a given period of time at a particular price ± Quantity demanded of a commodity depends on many other factors besides its own price ¾ Prices of other commodities ¾ Level and distribution of income ¾ Size of the population ¾ Tastes or preferences of the consumers
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© Gustavo Indart Slide 3 The Demand for a Commodity The Demand for a Commodity ± Demand for a commodity refers to the entire relationship between the quantity demanded and the price of a commodity, holding all other factors constant ± The demand for a commodity is shown by the demand schedule and/or the demand curve
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© Gustavo Indart Slide 4 The Demand Schedule The Demand Schedule The d emand schedule for a commodity shows the different quantities demanded when only the price of the commodity is allowed to change 1 6 2 5 3 4 4 3 6 2 9 1 Tons per Week Price (lb.) Demand Schedule for Apples
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© Gustavo Indart Slide 5 The Demand Curve The Demand Curve ± A demand curve graphs the relationship between the quantity demanded of a commodity and its own price ± A demand curve shows the maximum price that consumers are willing to pay for the last unit bought of the commodity
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© Gustavo Indart Slide 6 The Demand Curve for Apples The Demand Curve for Apples 0 1 2 3 4 5 6 7 123456789 Quantity (tons/week) Price ($)
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© Gustavo Indart Slide 7 The Law of Demand The Law of Demand ± Law of Demand states that, other things being equal, the higher the price of a commodity, the lower is the quantity demanded ± The Law of Demand is not an absolute law it is the most likely outcome ± The Law of Demand is shown by the negative slope of the demand curve
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© Gustavo Indart Slide 8 Shift of the Demand Curve Shift of the Demand Curve ± The position of the demand curve changes if any of the following occurs: ¾ A change in the price of some other commodity ¾ A change in income ¾ A change in the distribution of income ¾ A change in population ¾ A change in tastes or preferences
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© Gustavo Indart Slide 9 A Change in the Price of Some A Change in the Price of Some Other Commodity Other Commodity ± Direction of the shift depends on whether the other commodity is a substitute or a complement ± A is a commodity that can be used in place of another commodity (e.g., pears and apples) ± A is a commodity consumed in conjunction with another commodity (e.g., hamburgers and french fries)
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© Gustavo Indart Slide 10 An Increase in the Price of a An Increase in the Price of a Substitute Substitute P Q D Q 1 P 1 D’ Q 2 Initially, at price P 1 the quantity demanded is Q 1 After the increase in the price of a substitute, at price P 1 the quantity demanded increases to Q 2 – the demand curve shifts up to the right
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© Gustavo Indart Slide 11
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Lecture 02 - ECO100 - Introduction to Economics Lecture 2:...

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