2 Supply and Demand

# 2 Supply and Demand - Topic 2 Supply and Demand(1 USC...

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1/12/2009 1 Topic 2: Supply and Demand (1) USC Marshal Supply and demand • Review the basic supply and demand framework – Demand – Supply – Market equilibrium USC Marshal Demand functions and curves A demand function: – A relationship between the quantity demanded (per time period by a given set of individuals) and other variables – Other variables? USC Marshal • Price of the good • Price of other goods • Income •Tas tes • Government regulations,…

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1/12/2009 2 Demand functions and curves A demand function: – A relationship between the quantity demanded (per time period by a given set of individuals) and other variables USC Marshal – Mathematically, we can summarize this relationship by writing Q x d D p x , I , p y ,... Demand functions and curves Examples of demand levels: – When the price of a new car is \$3,000, income of consumers is \$10,000 and the price of a used car is \$2,000, the quantity of new cars demanded is 14,000. USC Marshal – Let P new = \$6,000, I =\$15,000 and P used = \$2,000. Then, Q new = 13,000 – Let P new = \$4,000, I =\$10,000 and P used = \$4,000. Then, Q new = 13,000 – And so on… Demand functions and curves • Much more efficient to represent the relationship mathematically. In this case, the demand function is • What about graphically? Q new d 15 1 2 P new 1 10 I 1 4 P used USC Marshal – Drawing in three dimensions is hard – Drawing in four dimensions is impossible • What is the primary relationship?
1/12/2009 3 Demand functions and curves Demand curve: – A relationship between the quantity demanded and the price of the product, holding other things constant ( ceteris paribus ) – The demand function was USC Marshal – Suppose that I = 20 and P used = 4. The demand curve is then?

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2 Supply and Demand - Topic 2 Supply and Demand(1 USC...

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