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

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ECO 100Y Introduction to Economics Lecture 2: Demand and Supply © Gustavo Indart Slide 1
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The Quantity Demanded Quantity demanded of a commodity is the amount that consumers plan to buy in a given period of time at that consumers plan to buy in a given period of time at a particular price Q i d d d f di d d 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 © Gustavo Indart Slide 2 ¾ Expectations about the future
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The Demand for a Commodity D d f di f h i 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 © Gustavo Indart Slide 3
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The Demand Schedule Demand Schedule for Apples The d emand schedule for a commodity h h diff Price (lb.) Tons per Week shows the different quantities demanded when only the price 6 1 5 2 of the commodity is allowed to change 4 3 3 4 2 6 1 9 © Gustavo Indart Slide 4
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The Demand Curve A demand curve graphs the relationship between 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 illi f h l i b h consumers are willing to pay for the last unit bought of the commodity © Gustavo Indart Slide 5
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The Demand Curve for Apples 7 5 6 3 4 Price ($) 0 1 2 P 1 2 3 4 5 6 7 8 9 Quantity (tons/week) © Gustavo Indart Slide 6
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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 © Gustavo Indart Slide 7
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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 h i h di ib i f i A change in the distribution of income ¾ A change in population ¾ A change in tastes or preferences ¾ A change in expectations about the future © Gustavo Indart Slide 8
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A Change in the Price of Some O h C di Other Commodity Di i f h hif d d h h h h Direction of the shift depends on whether the other commodity is a substitute or a complement A substitute is a commodity that can be used in place of another commodity (e.g., pears and apples) A complement is a commodity consumed in conjunction with another commodity (e g hamburgers conjunction with another commodity (e.g., hamburgers and french fries) © Gustavo Indart Slide 9
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An Increase in the Price of a S b i Substitute P After the increase in the price of a substitute, at price P 1 the quantity d d d i Q demanded increases to Q 2 Wh t i t t P 1 What is true at price P 1 is also true at any other i l l d D’ Initially, at price P h i
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