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Lecture 2 [Compatibility Mode]

# Lecture 2 [Compatibility Mode] - HE191 Principles of...

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E191 HE191 Principles of Economics Lecture 2 hapters 4 5 and 6 Chapters 4, 5 and 6 Principles of Economics, Fourth Edition N. Gregory Mankiw

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Demand ± Demand comes from the behavior of buyers. ± The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. ± Law of demand : the claim that the uantity demanded of a good falls when the quantity demanded of a good falls when the price of the good rises, other things equal
Helen’s Demand Schedule & Curve \$6.00 Price of Lattes Quantity of lattes emanded Price of ttes \$5.00 16 \$0.00 demanded lattes 3.00 \$4.00 12 2.00 14 1.00 \$2.00 \$3.00 8 4.00 10 3.00 0 00 \$1.00 4 6.00 6 5.00 \$0.00 0 5 10 15 Quantity of Lattes

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Market Demand versus Individual Demand ± The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. ± Suppose Helen and Ken are the only two buyers in the Latte market. ( Q d = quantity demanded) 16 Helen’s 8 Ken’s += 24 Market \$0.00 Price 12 14 6 7 18 21 2.00 1.00 8 10 4 5 + + = = 12 15 4.00 3.00 4 6 2 3 + + = = 6 9 6.00 5.00
Demand Curve Shifters ± The demand curve shows how price affects quantity demanded, other things being equal. gg q ± These “other things” are non-price determinants f demand ( ings that determine buyers’ of demand (i.e., things that determine buyers demand for a good, other than the good’s rice). price). ± Changes in them shift the D curve… n increase in the umber of buyers uses ± An increase in the number of buyers causes an increase in quantity demanded at each price, hich shifts the demand curve to the right which shifts the demand curve to the right.

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emand Curve Shifters: Number of buyers Demand Curve Shifters: Number of buyers \$6.00 P Suppose the number f buyers increases 4 00 \$5.00 of buyers increases. Then, at each price, uantity demanded \$3.00 \$4.00 quantity demanded will increase y 5 in this example) \$2.00 (by 5 in this example). \$0.00 \$1.00 Q 0 5 10 15 20 25 30
Demand Curve Shifters ± Income ± Demand for a normal good is positively related to income. An increase in income causes increase quantity demanded at each price shifting the rve to the in quantity demanded at each price, shifting the D curve to the right. ± Demand for an inferior good is negatively related to income. An increase in income shifts D curves for inferior goods to the left. rices of related goods ± Prices of related goods ± Two goods are substitutes if an increase in the price of one causes an increase in demand for the other. Examples … ± Two goods are complements if an increase in the price of one causes a fall in demand for the other. Examples … ± Tastes ± Expectations

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Supply ± Supply comes from the behavior of sellers. ± The quantity supplied of any good is the amount that sellers are willing and able to sell. ± Law of supply : the claim that the quantity pplied of a good rises when the price of the supplied of a good rises when the price of the good rises, other things equal
Starbucks’ Supply Schedule & Curve uantity rice Quantity of lattes pplied Price of ttes \$6.00 P 0 \$0.00 00 supplied lattes \$5.00 6 2.00 3 1.00 \$3.00 \$4.00 12 4.00 9 3.00 \$2.00 18 6.00 15 5.00 \$0.00 \$1.00 05 1 0 1 5 Q

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Lecture 2 [Compatibility Mode] - HE191 Principles of...

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