lec 2 - Chapter 2a-b: Supply and Demand Supply and Demand...

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Chapter 2a-b: Supply and Demand Supply and Demand With a basic knowledge of supply and demand, we can see how the marketplace responds to various events and the continuously changing tastes that affect the prices and quantities of particular goods. Demand for goods will increase and decrease, and the supply of goods will rise and fall. As these things take place, prices adjust to keep markets in balance. We will study how prices and quantities adjust to changes in demand and supply, and see how changes in prices serve as signals to buyers and sellers. 2.a. Demand Goods and services have their own special characteristics that determine how much people are willing and able to consume. One is the price of the good or service itself. Other determinants of demand may include consumer preferences, prices of related goods and services, income, demographic characteristics such as population’s size, and buyer expectations. With all these different variables influencing the demands for different goods and services, economists especially pay attention to the price of the good or service. Because people will purchase different quantities at different prices, we must be careful when speaking of the “demand” of something. Here are some specific terms and examples for expressing the general concept of demand. Quantity Demanded The quantity buyers are willing and able to buy at a particular price during a particular period, all other things unchanged. Suppose, for example, that 100,000 movie tickets are sold each month in a particular town at a price of $8 per ticket. That quantity – 100,000 – is the quantity of movie admissions demanded per month at the price of $8. If the price were $12, we would expect the quantity demanded to be less. If it were $4, we would expect the quantity demanded to be greater. Demand Schedule A table that shows the quantities of a good or service demanded at different prices during a particular period, all other things unchanged. Let’s consider the demand for coffee in the United States. Figure 2a-1 shows quantities of coffee that will be demanded each month at prices ranging from $9 to $4 per pound; the table is a demand schedule. We see that the higher the price, the lower the quantity demanded. 0 Quantity (millions of pounds of coffee per month) Quantity demanded/mo (millions of lbs) A B 5 10 15 20 25 30 35 40 45 1 2 3 Price per pound 7 8 9 $ 4 5 6 Price per pound ($) 10 15 20 25 30 35 4 5 6 7 8 9 Figure 2a-1 The table is a demand schedule; it shows quantities of coffee demanded per month in the United States at particular prices, all other things unchanged. These data are then plotted on the demand curve. At point A on the curve, 25 millions pounds of coffee per month are demanded 1
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Chapter 2a-b: Supply and Demand at a price of $6 per pound. At point B, 30 million pounds of coffee per month are demanded at a price of $5 per pound. Demand Curve
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lec 2 - Chapter 2a-b: Supply and Demand Supply and Demand...

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