Demand and Supply - Demand and Supply 1. Demand Schedule...

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Unformatted text preview: Demand and Supply 1. Demand Schedule and Demand Curve 2. Supply Schedule and the Supply Curve 3. Elasticity of demand and supply Demand- Total quantity customers are willing and able to purchase. A demand function is a behavior function for consumers. A supply function is a behavior function for producers. We describe market behavior using these two functions. Direct Demand and Derived Demand Direct Demand-for consumption goods Goods and services that satisfy consumer desires. Derived Demand-These are sometimes called intermediate goods. For example, demand for steel (an intermediate good) is derived from the demand for final goods (e.g., automobiles). Quantity Demanded amount of a good that the consumer is willing to buy and able to buy at a given price over a period of time. Law of Demand : All other things remaining unchanged, the quantity demanded of a good increases when its price decreases and vice versa. This relationship can be shown by a demand schedule, a demand curve or a demand function. Demand Schedule Demand Schedule shows the different quantities of goods that a consumer is willing to buy at various prices. Prices and quantities normally move in opposite directions Prices Quantity 4 28 8 15 12 5 16 1 20 Demand Curve : A curve showing the relationship between the price of a good and the quantity demanded. price quantity Demand Function: A demand function is a causal relationship between a dependent variable (i.e., quantity demanded) and various independent variables (i.e., factors which are believed to influence quantity demanded) Q = f(P) Where Q= quantity and P = price of a good. Example Q = 2 4P Determinants of Demand Own Price Income of the consumer Price of other goods- 1 . complements 2 . substitutes Tastes and preferences Expectations of future prices Advertising Distribution of income Types of goods Complementary goods are a pair of goods consumed together. As the price of one goes up the demand for the other falls. Example- car and petrol Substitute goods are alternatives to each other. As the price of one goes up the demand for the other also goes up. Example pepsi and coke Normal goods are those goods whose demand goes up when the consumers income increases. Inferior goods are those goods whose demand falls when the consumers income increases. Example : autotravel, kerosene Giffen goods are those goods whose demand moves in same direction as price Snob or Veblen goods are those goods whose demand falls when price falls Shift of the Demand Curve A change in demand is reflected by shift of the Demand curve and is caused by a change in any of the non price determinants of demand price qty Here, the curve shifts due to an increase in income or an increase in price of a substitute good etc...
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Demand and Supply - Demand and Supply 1. Demand Schedule...

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