Lecture1 - Lecture#1 Market Demand Lecture#1 Market Demand...

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Lecture #1: Market Demand If you demand something, then you 1. Want it, 2. Can afford it, and Lecture #1: Market Demand 3. Have made a definite plan to buy it. Wants are the unlimited desires or wishes people have for goods and services. Demand reflects a decision about which wants to satisfy. Definition: The quantity demanded of a good or service is the amount that consumers plan to buy during a particular time period, at a particular price. Determinants of Quantity Demanded for Wheat (q w ) -Price of Wheat (p w ) For example, p w q w and p w ↓ → q w Thi l d t d d h d l This leads us to a demand schedule … p w q w 2 6 Which allows us to 3 5 4 4 map Market Demand
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Market demand is defined only p w Market demand is defined only when all variables other than the price of the good in question (p w ) are held constant. Any change in those other variables serves to change the location 3 4 to change the location of Market Demand (i.e. they cause shifts in the demand curve). 2 D 4 5 6 q w
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These “shift” variables could be: These shift variables could be: • the price of other goods i.e. Corn is a substitute: p corn q w Milk is a complement: p milk q w • income changes: i.e. I q w if wheat is a normal good. q w if wheat is an inferior good. • tastes (or preferences) • income distribution income distribution • credit availability • government policies • expectations
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The Law of Demand – The law of demand states: The law of demand Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded. The law of demand results from Substitution effect Income effect Substitution effect —when the relative price (opportunity cost) of a good or service rises, people seek substitutes for it, so the quantity demanded decreases (not a proper definition…more later in the course). I ff h h i f d i i l i Income effect —when the price of a good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded decreases (not a proper definition…more later in the course).
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Distinction between Market Demand (D) and Quantity Demanded (q) p p D q q Market Demand (D) is a curve Quantity demanded (q) is a Market Demand (D) is a curve, normally downward-sloping, in price-quantity space.
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