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Home buyers home sellers demand curve demand demand

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Unformatted text preview: s policy? Home buyers? Home sellers? Demand Curve Demand Demand curve is the relationship Demand between two economic variables » Price of a given good » Quantity of this good consumers are willing to buy at that price in a particular time period » Ceteris paribus Ceteris Demand Schedule Price ($) Price Quantity Demanded 280 320 360 400 440 480 520 560 600 36 28 22 18 14 10 6 4 2 Table 3.1 Demand Curve Demand 640 Price 560 480 400 320 240 0 10 20 30 40 Quantity Demanded Fig 3.1 Law of Demand Law Ceteris paribus, the higher the price, the lower the quantity demanded in the market; and the lower the price, the higher the quantity demanded in the market Law of Demand Law Why does demand curve slopes Why downward? We need to understand consumers’ We behaviour to answer this question (Chapter 5) Principle of Substitution: when a good Principle becomes more expensive there is an incentive to switch to something else Law of Demand Law “People respond to incentives” The Law of Demand applies to all The types of behaviour Example: when fines for speeding Example: increase, people start to drive slower Shifts in Demand Shifts Demand curve shows the relationship Demand between Price and Quantity Demanded, keeping other things fixed keeping Graphically this corresponds to movement Graphically along the demand curve: change in price and quantity demanded What happens when some those other things other change? change? Shift of the Demand Curve: increase or Shift decrease in demand Fig 3.2 Shifts in Demand Shifts P Dnew Dold Q Fig 3.2 Factors Which Shift Demand Factors Consumers’ Consumers preferences Consumers’ Consumers information Consumers’ Consumers incomes » Normal goods » Inferior goods Consumers’ Consumers expectations Number of Number consumers in the market Prices of closely Prices related goods » Substitutes » Complements Factors Which Shift Demand Factors Consumers’ preferences and information Consumers » Concern about environment increases demand for food grown without conventional pesticides Consumers’ income Consumers » As income increases people buy more cars – car is a normal good » As income increases people travel less by bus – bus travel is an inferior good Consumers’ expectations Consumers » If price increase is expected in the future demand goes up » Housing Bubble Factors Which Shift Demand Factors Number of consumers in the market Number Prices of closely related goods: Substitutes of good A: goods that can be...
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