So what do you think do demand curves exist in the

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Unformatted text preview: are expressing the law of demand, which is graphically portrayed as a demand curve (in a textbook). So what do you think? Do demand curves exist in the real world? 0 1 2 3 4 Quantity demanded (in units) (b) (a) A demand schedule for a good. Notice that as price decreases, quantity demanded increases. (b) Plotting the four combinations of price and quantity demanded from part (a) and connecting the points gives us a demand curve. Price, on the vertical axis, represents price per unit of a good. Quantity demanded, on the horizontal axis, always applies to a specific time period (a week, a month, a year, and so on). Individual Demand Curves and Market Demand Curves An individual demand curve and a market demand curve are different. An individual demand curve is what it sounds like: the demand curve that represents an individual’s demand. For example, Harry’s demand curve represents Harry’s (and only Harry’s) demand for, say, DVDs. A market demand curve is simply the sum of all the different individual demand curves added together. demand curve The graphical representation of the law of demand. Section 1 Understanding Demand 93 04 (086-109) EMC Chap 04 EXHIBIT 4-2 11/17/05 Price of DVDs Sally’s demand curve $10 + DHarry 0 Page 94 From Individual Demand Curves to Market Demand Curve Harry’s demand curve $10 4:36 PM 2 + 1 DElizabeth 0 (b) Market demand curve $10 = DSally 0 (a) Elizabeth’s demand curve $10 3 DAll buyers 6 0 Quantity demanded of DVDs (c) (d) In parts (a) through (c) you see the individual demand curve for Harry, Sally, and Elizabeth. The market demand curve, shown in part (d), is simply the sum of the individual demand curves. Stated differently, we know that at a price of $10 per DVD, the quantity demanded of DVDs is 2 for Harry, 1 for Sally, and 3 for Elizabeth. It follows that all three buyers together would like to buy 6 DVDs at a price of $10 per DVD. This point is identified on the market demand curve in part (d). E X A M P L E : Suppose that the whole world has only three buyers of DVDs: Harry, Sally, and Elizabeth. At a price of $10 per DVD, quantity demanded is 2 for Harry, 1 for Sally, and 3 for Elizabeth. As a result, the market demand curve would include a point representing a price of $10 per DVD and a market quantity demanded of 6 DVDs (2 1 3). To see this graphically, look at Exhibit 4-2. In panels (a) through (c) you see the indi- Defining Terms 1. Define: a. demand b. quantity demanded c. market d. demand schedule e. demand curve f. law of demand 2. Use the terms demand and quantity demanded correctly in a sentence about concert tickets. Reviewing Facts and Concepts 3. State the law of demand. 94 Chapter 4 Demand vidual demand curves for Harry, Sally, and Elizabeth, respectively. (To keep things simple, we identify only one point on the demand curve for each person.) Now look at panel (d). Here you can see the market demand curve (for all buyers—Harry, Sally and Elizabeth—of DVDs). Notice that the point we identify on the market demand curve simply represents the quantity demanded of all three buyers together if the price of a DVD is $10. 4. Give an example of a demand schedule. Critical Thinking 5. Yesterday the price of a good was $10, and the quantity demanded was 100 units. Today the price of the good is $12, and the quantity demanded is 87 units. Did quantity demanded fall because the price increased, or did the price rise because quantity demanded fell? 6. What does the law of diminishing marginal utility have to do with the law of demand? Applying Economic Concepts 7. Assume that the law of demand applies to criminal activity. What might community leaders do to reduce the number of crimes committed in the community? 04 (086-109) EMC Chap 04 5/8/06 4:50 PM Page 95 Focus Questions What does it mean when a demand curve shifts to the right? What does it mean when a demand curve shifts to the left? What is a normal good? An inferior good? A neutral good? What factors can change demand? What factor can change quantity demanded? The Demand Curve Shifts Key Terms normal good inferior good neutral good substitute complement Demand can go up, and it can go down. For example, the demand for orange juice can rise or fall. The demand for CDs can rise or fall. Every time the demand changes for a good, any good, the demand curve for that good shifts. By shift we mean that it moves; it moves either to the right or to the left. For example, if the demand for orange juice increases, the demand curve for orange juice shifts to the right. If the demand for orange juice decreases, the demand curve for orange juice shifts to the left. EXH IBIT 4-3 Price (dollars per quart) When Demand Changes, the Curve Shifts Shifts in a Demand Curve Original demand curve C $1 A B D2 D1 D3 0 100 200 300 400 500 600 Quantity demanded of orange juice (quarts) Demand increases → Demand curve shifts rightward Demand decreases → Demand curve shifts leftward We can understand shifts in demand curves better with the aid of Exh...
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