topic1_review_demand_supply

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Unformatted text preview: Click to edit Master subtitle style Dr. Fidel Gonzalez (SHSU) Dr. Fidel Gonzalez (SHSU) TOPIC 1: QUICK REVIEW OF PRINCIPLES OF INTERMEDIATE MICROECONOMICS Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University Dr. Fidel Gonzalez (SHSU) • We will start the semester with the review of two important topics covered in your Principles of Microeconomics: Demand and Supply. • We are reviewing these two topics because we are going to use these concepts later in the semester so it is important that you re- familiarize your self with them. • We first start with demand and then follow up with supply Dr. Fidel Gonzalez (SHSU) Dr. Fidel Gonzalez (SHSU) Dr. Fidel Gonzalez (SHSU) DEMAND Demand is the relationship between price and quantity demanded. Quantity Demanded (QD): the amount of a good or service that the buyer is willing and able to purchase at a given price. Notice that demand is a whole relationship, it is NOT one price and one quantity but rather the whole relationship between the price and the QD. Since the demand is a relationship it is going to appear to us in three different ways: 1) In a Table. 2) A Graph. 3) An Equation. Therefore, we will cover demand for each of the previous three items. Dr. Fidel Gonzalez (SHSU) Dr. Fidel Gonzalez (SHSU) DEMAND: TABLE P Quantity Demanded of Ice Cream 11 1 10 2 9 3 8 4 7 5 6 6 5 7 4 8 3 9 2 10 1 11 The table on the left show the Demand for Ice Cream. That is, shows the relationship between price and quantity demanded. For instance, when the price per ice cream ball is \$2 the student will purchase 9 ice cream balls. Clearly, as the price per unit goes up the quantity demanded will go down. This is known as the Law of Demand: price and quantity demanded move in the opposite direction. Click to edit Master subtitle style Dr. Fidel Gonzalez (SHSU) Dr. Fidel Gonzalez (SHSU) P Ice Cream Balls 11 11 Demand Curve Demand: graph The graph below is the graphic representation of the demand. The line with the negative slope is the Demand Curve. The negative slope of the demand curve represents the Law of Demand ( negative relationship between price and quantity demanded) The graphical representation of the price and quantity demand is called the demand curve.. Click to edit Master subtitle style Dr. Fidel Gonzalez (SHSU) Dr. Fidel Gonzalez (SHSU) P Ice Cream Balls, (Q) 11 11 Demand Curve Demand and Inverse Demand Equation Slope = -1 The equation of the demand curve is: P= - QD + 11 , where P is the price and QD is the quantity demanded of ice cream The previous equation is called the inverse demand equation. Q: Why it is not called the demand equation if it is the equation of the demand curve? Dr. Fidel Gonzalez (SHSU) Dr. Fidel Gonzalez (SHSU) A: We have implicitly assumed that we are in a competitive market....
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## This note was uploaded on 06/08/2011 for the course ECON 3357 taught by Professor Fidel during the Summer '11 term at Sam Houston State University.

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topic1_review_demand_supply - Click to edit Master subtitle...

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