101chapter2

# 101chapter2 - Chapter 2: Demand & Supply Chapter Demand...

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Demand Supply Market Equilibrium Examples Price ceiling/floor

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Build a model Build a model buyers sellers & their interaction
Use the model Use the model to predict the impact of changes to explain changes that occur

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Demand Demand behavior of buyers relationship between quantity demanded of a good price holding other factors constant
quantity demanded (Qd) quantity demanded (Qd) amount of good or service unit of measure per unit of time “2 bottles of water per day”

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Law of Demand Law of Demand If the price of a good then the Qd holding other things constant!!!
Why? Why? higher price makes you feel poorer income effect higher price on one good, substitute other goods. substitution effect

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Example: bottles of water per day Example: bottles of water per day Describe demand in 2 ways: Demand schedule a list of Qd at each price Demand curve a graph of demand schedule
Demand Schedule Demand Schedule P Qd Price = \$/bottle Qd = bottles/day \$2.00 0 \$1.50 1 \$1.00 2 \$.50 3

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Demand curve Demand curve P Qd 0 1 2 3 4 2 1.5 1 .5 D
individual demand demand curve for 1 buyer market demand** demand curve for all buyers add up individual Qd for each price

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Changes in Demand Changes in Demand recall our assumption hold other things constant allow only price to change but what if other factors do change? change in demand shift to a new demand curve
increase in demand increase in demand increase in Qd at every price demand curve shifts to the right

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P Qd 0 1 2 3 4 2 1.5 1 .5 D D’
decrease in demand decrease in demand decrease in Qd at every price demand curve shifts to the left

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P Qd D D’’
Factors affecting demand Factors affecting demand income prices of related goods buyer expectations # of buyers preferences

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income income for normal goods , an increase in income will increase demand examples: CDs, bottled water, eating out,
for inferior goods , an increase in income will decrease the demand examples: ramen noodles, check-cashing service

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Prices of related goods what are related goods? substitutes
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## This document was uploaded on 06/18/2011.

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101chapter2 - Chapter 2: Demand & Supply Chapter Demand...

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