Demand - I. Demand Definition : The market demand for a...

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Unformatted text preview: I. Demand Definition : The market demand for a good is the total amount of a good that consumers are willing to buy in a given time period. The market demand for a good depends on: (a) Price of the good (P) (b) Prices of other goods (Pr) (c) Average income of consumers (M) (d) Population (N) (e) Tastes/preferences of consumers (T) Generalized Demand Function: Qd = f(P,Pr,M,N,T) Qcoffee = f(Pcoffee, Ptea,Psugar,Ppencils, M,N,T) Example of Generalized Demand Function: Qd =6.0-1P+.5Ptea-.5Psugar+1N+.1*M Qd = 1,000 pounds of coffee per month, P = $ per pound Qd = 1,000 pounds per month P = $ per pound Ptea = $3 Psugar=$1 N = cons in thousands = 1 M = 20 = income in $1,000 (e.g., 10 = $10,000, 20 = $20,000) If P = $7, Qd = 6.0 - 1(7) + .5(3) -.5(1) + 1(1) + .1 * (20) = 7 (thousand pounds) Expected relations (consider one at a time) : 1. Price of the good (P) Law of demand : other things being equal (ceteris paribus), the quantity of a good demanded is inversely related to its price. Pcoffee - negative relationship. To analyze further, consider the demand equation, which shows the quantity of a good demanded as it is related to its price, other things being equal (ceteris paribus)....
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Demand - I. Demand Definition : The market demand for a...

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