Intermediate Microeconomics: A Modern Approach, Seventh Edition

Info icon This preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Demand & Supply
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 On Modeling Models may seem very simplistic at times - but many good models are. Proof of pudding is in how well the model stands up to empirical scrutiny. Two pitfalls to avoid: the fallacy of composition post hoc ergo propter hoc mistakes positive vs. normative analysis
Image of page 2
3 Supply and Demand The supply and demand model is a basic workhorse of economics. We will consider each of its pieces. Then, we will use it to answer some basic questions. Note: When employing supply and demand we are considering perfectly competitive markets. For now that simply means all buyers and sellers are assumed to be price takers.
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4 Demand Concepts The demand function for X: X D = f(P X , P s , P c , I, T&P, Pop) Where: X D = quantity demanded P X = X’s price P s = the price of substitutes P c = the price of complements I=income T&P=tastes and preferences Pop=population in market or market size
Image of page 4
5 The Demand Curve (Verbal) The demand curve, a.k.a. demand, describes the relation between a good’s price and the maximum quantity that consumers are willing and able to buy at that price, ceteris paribus. Ceteris paribus means holding all the other demand function variables constant at some given level.
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
6 The Demand Curve (Verbal) The Law of Demand states that the relationship between a good’s price and the quantity demanded of that good is negative. Example: when the price of a good falls from 25 to 10 , the quantity demanded rises from 15 to 30 . This is referred to as a “change in quantity demanded” and in this case an “increase in quantity demanded.” Own-price changes cause movements along a given demand curve.
Image of page 6
7 Movements vs. Shifts A movement along the demand curve for X would be caused by a change in P x . A shift of the entire demand curve would be caused by a change in one of the “ceteris paribus” demand variables. This would be referred to as an increase or decrease in demand.
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
8 Increase in Demand When demand increases, the quantity demanded by consumers increases at every price. Example: when demand increases, the quantity demanded at a price of 25 rises from 15 to 25 .
Image of page 8
9 Decrease in Demand When demand decreases, the quantity demanded by consumers falls at every price. Example: when demand decreases, the quantity demanded at a price of 25 falls from 15 to 10 .
Image of page 9

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
10 The Demand Curve (Table) The quantity demanded is a declining function of the price, as the table to the right illustrates. Demand Curve Price Quantity Demanded 0 40 5 35 10 30 15 25 20 20 25 15 30 10 35 5 40 0
Image of page 10
11 Increase in Demand When demand increases, the quantity demanded is greater at every price. Demand Curve Price Original Demand Increased Demand 0 40 50 5 35 45 10 30 40 15 25 35 20 20 30 25 15 25 30 10 20 35 5 15 40 0 10
Image of page 11

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
12 Decrease in Demand When demand decreases, the quantity demanded is lower at every price.
Image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern