Lecture01 - Lecture 1: Supply and Demand Perlo Chapter 2...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 1: Supply and Demand Perlo/ Chapter 2 Vladimir Petkov VUW 01 March 2010 Vladimir Petkov (VUW) Lecture 1: Supply and Demand 01 March 2010 1 ± 26
Background image of page 1

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

View Full DocumentRight Arrow Icon
Demand The quantity demanded is the amount that consumers are willing to buy at a given price during , holding constant the other factors Factors that can a/ect demand (kept constant when plotting a demand curve). Consumer tastes Information . For example, new info may be revealed that some products are healthy, etc. Prices of related goods . Consume more of the good if the price of a close substitute increases; consume less if the price of a complementary good increases. Income. An increase in income will can to more purchases (if the good is normal ) or fewer purchases (if the good is inferior ). Government rules and regulations. Taxes, for example, may change the e/ective price that consumers pay. Note that the quantity demanded can be higher or lower than the quantity sold (they are equal only in equilibrium). Vladimir Petkov (VUW) Lecture 1: Supply and Demand 01 March 2010 2 ± 26
Background image of page 2
The Demand Function The demand function is a mathematical representation of the relationship between the quantity demanded of a good, its price, and Q = D ( p , p s , p c , Y ) . Here p is the price per unit, p s is the price of a substitute good, p c is the price of a complementary good and Y is income. For example, the estimated demand function for pork consumption in Canada is Q = 171 20 p + 20 p b + 3 p c + 2 Y , where p b and p c are the prices of beef and chicken (substitutes). Usually we are interested in the relationship between the quantity demanded of a good and its price, so we ±x the other variables. In the above example, we could set p b = 4, p c = 3.33 and Y = 12.5 . This will give us Q = D ( p ) = 286 20 p . Vladimir Petkov (VUW) Lecture 1: Supply and Demand 01 March 2010 3 / 26
Background image of page 3

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

View Full DocumentRight Arrow Icon
The Demand Curve We can show the relationship Q = D ( p ) = 286 20 p graphically. Note that we plot the dependent variable ( Q ) on the horizontal axis and the independent variable ( p ) on the vertical axis! Vladimir Petkov (VUW) Lecture 1: Supply and Demand 01 March 2010 4 / 26
Background image of page 4
The E/ect of a Change in Price on Demand In the above example, if we increase the price form $3.30 to $4.30 , the quantity demanded decreases by 20 units (from 220 to 200). A change in price ( ceteris paribus ) translates into a movement along the demand curve. The demand curve is usually downward sloping: if price goes up, quantity demanded falls! This is known as the law of demand . However, some goods have upward-sloping demand curves. They are known as Gi/en goods . In our example,
Background image of page 5

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

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 26

Lecture01 - Lecture 1: Supply and Demand Perlo Chapter 2...

This preview shows document pages 1 - 6. Sign up to view the full document.

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