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"Supply and Demand

"Supply and Demand - Law of Demand Ceteris Paribus...

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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 0 Q 1 Q 0 At price P 0 the quantity demanded of this good equals Q 0 . If the price rises to P 1 , the quantity demanded falls to Q 1 .
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Changes (Shifts) in Demand P 0 P 0 P 0 P 0 Q 0 Q 0 Q 0 Q 0 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
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Changes (Shifts) in Demand (Continued) P 0 P 0 P 0 P 0 Q 0 Q 0 Q 0 Q 0 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
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Changes (Shifts) in Demand (Continued) P 0 P 0 P 0 P 0 Q 0 Q 0 Q 0 Q 0 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
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