ECON
Midterm 1

# Demand the quantity demanded of any good is the

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DEMAND - The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. - Law of demand : The claim that the quantity demanded of a good falls when the price of the good rises, other things equal. - There is an inverse relationship between Price and Quantity demanded: a) As Price increases= Quantity demanded decreases b) As Price decreases = Quantity demanded increases *This idea is called ‘ceteris paribus’ reasoning. This means that the only thing that is changing is price. -THE DEMAND SCHEDULE: A table that shows the relationship between the price of a good and the quantity demanded. Example: Helen’s demand for lattes.

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*Notice that Helen’ preferences obey the Law of Demand (i.e. that as price increases, the quantity demanded decreases). * y- axis= dependent variable (Price, the change in quantity is dependent on the change in prices) * x- axis= explanatory variable (Quantity demanded) * Slope= Change in y/Change in x Market Demand vs. Individual Demand - The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. - Suppose Helen and Ken are the only two buyers in the Latte market.
Demand Curve Shifters (What causes the demand curve to shift?) - The demand curve shows how price affects quantity demanded, other things being equal. - These “other things” are non-price determinants of demand (i.e. things that determine buyers demand for a good, other than the good’s price). Changes in them shift the Demand Curve. CHANGES THAT SHIFT THE DEMAND CURVE: 1. Number of Buyers : An increase in the number of buyers increases quantity demanded at each price and shifts the Demand curve to the right.

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2. Income - Demand for normal goods is positively related to income: An increase in income causes an increase in quantity demanded at each price= Shifts the demand curve to the right - Demand for an inferior good is negatively related to income. An increase in income shifts the demand curve for inferior goods to the left. 3. Prices of Related goods - Two goods are substitutes if an increase in the price of one causes an increase in demand for the other. Example: If the price of tea increases= The quantity demanded of coffee will increase - Two good are complements if an increase in the price of one causes a fall in demand for the other. Example: Price of milk increase= The quantity demanded of coffee will decrease= Demand curve will shift to the left 4. Tastes - Anything that causes a shift in tastes towards a good will increase demand for that good and shift its Demand curve to the right. Example: The Atkins diet become popular in the 90’s, which caused an increase in demand for eggs, therefore the demand curve for eggs shifted to the right. 5. Expectations - Expectations affect consumers’ buying decisions.
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