Topic02(a)_SupplyDemand - Topic 2(a) 2( Supply and Demand...

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Topic 2(a) Supply and Demand Dr. Ratna K. Shrestha
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The Market Forces of Supply and Demand ± Supply and Demand are the forces that make market economies work! he terms upply nd emand fer to the ± The terms supply and demand refer to the behavior of producers and consumers. . . as they interact with one another in the markets. ± This model allows managers to predict changes in market outcomes caused by hanges in economic situations such as new changes in economic situations such as new taxes, prices of inputs, and income. 2
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The Market Forces of Supply and Demand z This model is applicable well particularly in markets with many buyers and sellers such s agricultural markets retail markets as agricultural markets, retail markets, construction industry etc. or example it can predict what happens to z For example , it can predict what happens to the demand for online music when the price of iPod goes down? 3
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he Demand Curve The Demand Curve he demand curve slopes Price The demand curve slopes downward demonstrating that consumers are willing buy more at a lower price ($ per unit) to buy more at a lower price, given that other factors such as income doesn’t change. P 2 P 1 D 4 Quantity Q 1 Q 2
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The Demand Curve ther Variables (except price) Affecting z Other Variables (except price) Affecting Demand ± Income: Increases in income allow consumers to purchase more at all prices, shifting the demand curve to the right. onsumer Tastes: dvertisement can ± Consumer Tastes: Advertisement can affect people’s taste. rice of Related Goods ± Price of Related Goods z Substitutes z omplements 5 Complements
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rices of Related Goods Prices of Related Goods hen the fall in price of one good duces ± When the fall in price of one good reduces the demand for another good ( shift of demand curve to the left ), the two goods are substitutes . Examples? Pepsi and Coke, butter and margarine, Levi and other brands f jeans etc. . of jeans etc. ± When the fall in the price of one good creases (shifts right) the demand for increases (shifts right) the demand for another good, the two goods are complements. E.g., computer and software. 6
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The Demand Curve opulation ± Population ± Consumer Expectations z the consumers expect the price of autos If the consumers expect the price of autos to be higher next year, its demand today will increase (shifting the curve to the right). ± Govt. rules and regulations: If the city bans the use of skateboards on its street, the emand for skateboards falls (shift left) Sales demand for skateboards falls (shift left). Sales taxes can decrease the demand for goods (shift left). 7
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D Change (Shift) in Demand ith an crease P D’ P 2 z With an increase in income, d emand creases from Q P increases from Q 1 to Q 2 at P 1 and as a result demand 1 curve shifts right.
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This note was uploaded on 05/11/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at The University of British Columbia.

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Topic02(a)_SupplyDemand - Topic 2(a) 2( Supply and Demand...

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