"Supply and Demand

"Supply and Demand - Law of Demand: Ceteris Paribus, a...

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Unformatted text preview: Law of Demand: Ceteris Paribus, a rise in the price of a good or service will decrease the quantity demanded of that good or service. Price Quantity Demand P 1 P Q 1 Q At price P the quantity demanded of this good equals Q . If the price rises to P 1 , the quantity demanded falls to Q 1 . Changes (Shifts) in Demand P P P P Q Q Q Q Price Price Price Price Quantity Quantity Quantity Quantity EVENT: Increase in average household income (NORMAL GOOD) EVENT: Rise in the price of a substitute good EVENT: Increase in the number of households EVENT: Increase in average household income (INFERIOR GOOD) D D D D D’ Q 1 D’ Q 1 D’ Q 1 D’ Q 1 Changes (Shifts) in Demand (Continued) P P P P Q Q Q Q Price Price Price Price Quantity Quantity Quantity Quantity EVENT: Increase in the price of a complementary good EVENT: Increase in expected future income or wealth (Normal Good) EVENT: Change in Tastes and Preferences: good becomes more desirable EVENT: Increase in Household Wealth, or Net Worth (Normal Good) D D D D D’ Q 1 D’ Q 1 D’ Q 1 D’ Q 1 Changes (Shifts) in Demand (Continued) P P P P Q Q Q Q Price Price Price Price Quantity Quantity Quantity Quantity EVENT: Decrease in expected future price of this good EVENT: Decrease in expected future income or wealth (Inferior Good) EVENT: Increase in government subsidies to buyers EVENT: Increase in advertising (which makes the good known to consumers or persuades them that is superior to substitutes) D D D D D’ Q 1 D’ Q 1 D’ Q 1 D’ Q 1 Law of Supply:...
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This note was uploaded on 04/12/2011 for the course ECON 415 taught by Professor Holland during the Spring '09 term at Purdue University.

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"Supply and Demand - Law of Demand: Ceteris Paribus, a...

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