Pepsi coke when price of a substitute good goes up

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Unformatted text preview: Substitutes consumed instead of A » Coke and Pepsi Coke » When price of a substitute good goes up When substitute good demand for A goes up (shits to the right) Complements of good A: goods that can be Complements consumed together with A » Coffee and Sugar Coffee » When price of a complement goes up When complement goes demand for A goes down (shits to the left) Change in Demand & Change in the Quantity Demanded Decrease in the Quantity Demanded Increase in Demand P B A C D1 D0 D2 Q Decrease in Demand Increase in the Quantity Demanded Fig 3.3 Supply Curve Supply Supply curve is the relationship Supply between two economic variables » Price of a given good » Quantity of this good firms are willing to sell at that price in a particular time period » Ceteris paribus Ceteris Supply Schedule Supply Price ($) Quantity Supplied 280 320 360 400 440 480 520 560 600 2 8 14 18 22 26 30 32 34 Table 3.2 Supply Curve Supply 640 Price 560 480 400 320 240 0 10 20 30 40 Quantity Supplied Fig 3.4 Law of Supply Law Ceteris paribus, the higher the price, the higher the quantity supplied in the market; and the lower the price, the lower the quantity supplied in the market Law of Supply Law Why does supply curve slopes upward? Why We need to understand behaviour and We cost structure of firms to answer this question (Chapter 6) As output increases inputs become As more scarce which increases costs of production – need a higher price to compensate for this Shifts in Supply Shifts Supply curve shows the relationship Supply between Price and Quantity Supplied, keeping keeping other things fixed Graphically this corresponds to movement Graphically along the supply curve: change in price and quantity supplied What happens when some those other things other change? change? Shift of the Supply Curve: increase or Shift decrease in supply Fig 3.2 Shifts in Supply Shifts P Sold Snew Q Fig 3.5 Factors Which Shift Supply Factors Technology Technology Price of input goods Price Government taxes, subsidies Government and regulations Number of firms in the market Number Expectations of future price Expectations Change in Supply & Change in the Quantity Supplied Decrease in the Quantity Supplied Decrease in Supply P D S1 S2 F E S0 Increase in Supply Q Increase in the Quantity Supplied Fig 3.6 Finding Market Equilibrium Price ($) Price QD QS Shortage or Surplus 280 320 360 400 440 480 520 560 600 36 28 22 18 14 10 6 4 2 2 8 14 18 22 26 30 32 34 -34 -20 -8 0 +8 +16 +24 +28 +32 Effect on Price ↑ ↑ ↑ ↔ ↓ ↓ ↓ ↓ ↓ Table 3.3 Equilibrium Price & Quantity 640 Surplus S Price Equilibrium price ($400) 560 480 400 320 D 240 0 10 20 30 40 Equilibrium Quantity Shortage quantity (18000) Fig 3.7 Increase in Demand P S P1 P0 DNew DOld Q0 Q1 Q Pe↑ & Qe↑ Fig 3.8 Decrease in Supply P SNew SOld P1 P0 D Q1 Q0 Q Pe↑ & Qe↓ Fig 3.9 Effects of Shifts in Demand & Supply Demand Shift Shift Effect on Pe Effect on Qe Demand ↑ ↑ ↑ Demand ↓ ↓ ↓ Supply ↑ ↓ ↑ Supply ↓ ↑ ↓ Table 3.4 Conclusion Conclusion Demand and Supply model can be Demand used to » predict what happens in the market after changes in exogenous variables » analyse effects of government policies such as price controls and subsidies...
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This note was uploaded on 05/04/2013 for the course ACCY 231 taught by Professor G during the Three '12 term at University of Wollongong, Australia.

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