Demand ad Supply

# Market demand curve sum totals of all individual

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Market Demand Curve Sum totals of all individual demand for a particular good. Q d P D

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FACTORS THAT CAN CAUSE THE DEMAND CURVE TO SHIFT Price of good itself This explanation is implicit in the law of demand. Income As a person’s income rises; he or she can buy more of any particular good at given prices. But the ability to buy more does not necessarily imply the willingness to do so. I↑ --> D↑ (Rightward shift of the demand curve) a) Normal Good a good the demand for which demand rises (falls) as income rises (falls). The demand for a normal good and income are directly related. b) Inferior Good a good the demand for which falls (rises) as income rises (falls). The demand for an inferior good and income are inversely related (fast food). Prices of other related goods There are 2 types of related goods a) Substitutes two goods are substitutes if they satisfy similar needs or desire. With substitutes, the demand for one rises as the price of the other rises, and the demand for one falls as the price of the other falls. E.g. Coca-Cola and Pepsi-Cola, coffee and tea, margarine and butter. Same Direction P A ↑ ----> D O P A ↓ ----> D O b) Complements Two goods are complements if they are consumed jointly. E.g. tennis rackets and tennis balls, spaghetti and meat sauce, Walkman and CDs. With complements, the
demand for one rises when the price of the other falls and the demand for one falls as the price of the other rises. Opposite Direction P A ↑ ----> D O P A ↓ ----> D O Taste Preference People’s preferences affect the amount of a good they are willing to buy at a particular price. Number of buyer (population) The demand for a good in a particular area is related to the number buyers in the market area. The greater the buyers, the higher the demand and vice versa. The # of buyers may increase due to higher birthrate, increased immigration, the migration of people from one region of the country to another and so on. The # of people (buyers) may decreased due to higher death rate, war, migration out of a region, and etc. Quality Future price expectation The higher the expected price of a good, the higher the demand now of future prices and vice versa Many, many more A CHANGE IN QUANTITY DEMANDED vs. A CHANGE IN DEMAND A change in Q d This refers to a movement along a demand curve. If the price of a good changes but everything else remains the same, there is a movement along the demand curve.

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A change in D This refers to a shift in the demand curve. A change in the demand for a product is brought about by a change in all the other factors affecting demand with the exception of the price of the good itself. Q d P D P 1 P 2 Q 2 Q 1 Q d P D 0 D 2 (increase in demand) D 1 (decrease in demand)
SUPPLY SUPPLY (S) Supply refer to the willingness and ability of seller to produce different quantities of a good at different price during a specific time period (per day, week, and so on.) QUANTITY SUPPLY (Q s ) Measure of the number of units of a particular goods that sellers are willing and able to sell at a particular price during a given time period.

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