Econ103part02 - Part 2 Markets: Demand, Supply, and...

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

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Part 2 Markets: Demand, Supply, and Elasticity What determines the price of a good or service and the quantity bought and sold? Demand and supply model of a market This simple model of a market assumes competitive conditions Distinguish between a demand side and a supply side of the market Together they determine the equilibrium price and quantity Demand Demand is the quantity of a good people will wish to purchase over a given time The quantity of a good a person will plan to purchase will depend on:- Preferences (tastes)- Price of the good- Prices of other goods- Expected future prices- Income In the aggregate, demand will also depend on:- Population and demographics The Law of Demand Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded Substitution effectthe effect of the change in relative price Income effectthe effect of the change in overall purchasing power Demand Function and Demand Curves Demand functiondemand as a function of a number of variables Demand curvedemand as a function of price, everything else held constant What is held constant along a demand curve? Changes in the quantity demanded movements along the demand curve Changes in Quantity Demanded P Q P P P Q Q Q Decrease in quantity demanded Increase in quantity demanded Change in quantity demandeda movement along the demand curve Demand Curves Can be linear or non-linear A linear demand curve P Q 20 30 P = 20 - 2/3Q P = a + bQ Where a is the P intercept and b is the slope variable and is negative Demand Curves A demand curve is more usually written with Q as the dependent variable P Q 20 30 Q = a + bP Where a is the Q intercept and b is the inverse of the slope and is negative Q = 30 3/2P Changes in Demand Shift in a demand curve is a Change in Demand Change in tastes or preferences Change in the prices of other goods- substitutes- complements Changes in expected future prices Changes in income- normal goods- inferior goods Changes in population/demographics An Increase in Demand An increase in demanda rightward shift P Q D D An Increase in Demand Price of a substitute rises Price of a complement falls Expected future price rises Income rises (normal good) or income falls (inferior good) Preferences move toward the good Population increases A Decrease in Demand A decrease in demanda leftward shift P Q D D A Decrease in Demand Price of a substitute falls Price of a complement rises Expected future price falls Income falls (normal good) or income rises (inferior good) Preferences move away from the good Population falls. Supply...
View Full Document

Page1 / 48

Econ103part02 - Part 2 Markets: Demand, Supply, and...

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online