corresponds to a movement along a given demand curve. The market demand curve is the horizontal sum of the individual demand curves : to find the total quantities demanded in the market at each price, we sum the individual quantities that are demanded at that price. 2
Changes in the price of a good lead to a change in the quantity demanded of that good (movements along the demand ). Changes in variables other than the price of a good, such as income, tastes or the price of another good, lead to a change in demand (shifts of the entire demand curve ). Shifts in the demand curve : Increase in demand • Any change that increases the quantity demanded at every price • Demand curve shifts right Decrease in demand • Any change that decreases the quantity demanded at every price • Demand curve shifts left Variables that can shift the demand curve – Income (Normal goods versus Inferior goods) – Prices of related goods (Substitute versus Complement related goods) – Tastes (informative and persuasive advertising and changes in composition of the population) – Expectations (expectations of higher prices and stockpiling of durable products) – Number of buyers (changes in size of the population) Simple Examples Draw a demand curve for music downloads. What happens to it in each of the following scenarios? Why? A. The price of iPods falls B. The price of music downloads falls C. The price of CDs falls SUPPLY Quantity supplied : Amount of a good that sellers are willing and able to sell. Law of supply : Holding other things constant, when the price of the good rises the quantity supplied of that good rises (price and quantity demanded are directly related) A supply schedule is a table showing the relationship between the price of a good and the quantity supplied of that good. A supply curve graphs the supply schedule (it is a graph showing the relationship between the price of a good and the quantity supplied of that good). Changes in the 3
price of a good lead to a change in the quantity supplied of that good. This corresponds to a movement along a given supply curve.