b. Complements : two goods that are used jointly in consumption if you buy one, you also buy the other i. Complements are two goods for which the demand for one good is negatively related to the price of another good. ii. If two goods are complements, and the price of one of the goods rises, the demand for the other good _________________. 9
iii. If two goods are complements, and the price of one of the goods falls, the demand for the other good increases__. Price of good decreases , demand for good 2 increases iv. Examples: cereal / milkv. Example: Suppose peanut butter and jelly are complements, and the price of peanut butter rises. How will this affect the demand for jelly? 4. Number of Buyers 10
a. If there are more buyers, demand will increase. b. If there are fewer buyers, demand will decrease. c. Factors that affect number of buyers: population, regulations d. Example: What will happen to the demand for Bearcat apparel if enrollment at Northwest doubles? increase 5. Buyer Expectations of Future Prices a. What people expect to happen in the future affects demand today. b. If consumers expect the price of a good to increase in the future, their demand for that good will __increase_today. Buy it now before price increases 11
c. If consumers expect the price of a good to decrease in the future, their demand for that good will decrease today. Wait to buy in the hopes that Price decreases d. Example: Suppose consumers expect the price of iPads to decrease dramatically next month. What will happen to the demand for iPads today? III. Supply A. Supply : the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period B. Law of supply : as the price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls, ceteris paribus If the price increases, quantity supplied increases and if price decreases quantity supplied decreases. Ceteris paribus: holding everything constant 12
1. The law of supply holds for most goods. 2. A higher price is an incentive for sellers (or producers) to sell more of the good. Higher profits if price increases; lower profit if profit decreases; ceteris paribus 3. The law of supply does not hold if there is no time to produce more units, or if no more can be produced over any period of time. C. Supply schedule : the numerical tabulation of the quantity supplied of a good at different prices 1. A supply schedule is the numerical representation of the law of supply. 2. Individual supply schedule: Price Pagliai’s Quantity Supplied of Pizza $0 0 $5 10 $10 20 $15 30 $20 40 D. Supply curve : the graphical representation of the law of supply, which states that price and quantity supplied are directly related, ceteris paribus 1. Example: Pagliai’s individual supply curve 13
2. Derivation of Market Supply a. An individual supply curve represents the price-quantity combinations of a particular good for a single seller, while a market supply curve represents the price-quantity combinations for all sellers.