Demand Supply Chapter 3 Demand n demand is

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Demand Supply Chapter 3

Demand Supply Chapter 3

Demand n demand is a schedule that shows the various amounts of a product

Demand n demand is a schedule that shows the various amounts of a product consumers are WILLING and ABLE to BUY at each specific price at a specific time.

n Demand Schedule: listing that shows the # demanded at different prices Demand Schedule

n Demand Schedule: listing that shows the # demanded at different prices Demand Schedule for Donuts Price Quantity $2 1 $1. 50 5 $1. 00 8 $. 75 12 $. 50 15 $. 25 25

n Demand n See Curve: the schedule on a graph on document manager

n Demand n See Curve: the schedule on a graph on document manager

Law of Demand n There is an inverse relationship between price & quantity demanded

Law of Demand n There is an inverse relationship between price & quantity demanded – If p , D

n Substitution Effect: a lower price gives an incentive to substitute the lower-priced good

n Substitution Effect: a lower price gives an incentive to substitute the lower-priced good for the higher priced good

n Marginal Utility: Extra satisfaction from getting one more unit of a product n

n Marginal Utility: Extra satisfaction from getting one more unit of a product n Diminishing marginal utility: the extra satisfaction we get from one more unit begins to diminish

Demand Curve n Always Downward sloping—indicating lower quantity demanded at higher prices, higher quantities

Demand Curve n Always Downward sloping—indicating lower quantity demanded at higher prices, higher quantities at lower prices n Change in PRICE reflects movement along the curve = change in quantity demanded

n If a change in demand is NOT caused by a change in PRICE,

n If a change in demand is NOT caused by a change in PRICE, the entire curve will shift = change in demand

Determinants that affect demand (other than price) n Consumer tastes n # of buyers

Determinants that affect demand (other than price) n Consumer tastes n # of buyers n Income n Prices of related goods – Substitute goods – Complementary goods n Expectations

Demand Schedule for Donuts Price Quantity 1 Quantity 2 $2 1 3 $1. 50

Demand Schedule for Donuts Price Quantity 1 Quantity 2 $2 1 3 $1. 50 5 7 $1. 00 8 12 $. 75 12 20 $. 50 15 25 $. 25 25 35 Demand has increased so the curve has shifted to the right.

Supply n Supply is a schedule that shows the amount of a product a

Supply n Supply is a schedule that shows the amount of a product a producer is WILLING and ABLE to produce and SELL at each specific price at a specific time.

Law of supply n Producers will produce & sell more of their product at

Law of supply n Producers will produce & sell more of their product at a high P than at a low P. n There is a direct relationship in P & Q supplied – If P , S will

Explanation of the Law of Supply n Given product costs, a higher P means

Explanation of the Law of Supply n Given product costs, a higher P means greater profits and thus an incentive to increase the Q supplied.

Supply Curve Supply Schedule for cakes n Upward sloping— indicating higher Qs supplied at

Supply Curve Supply Schedule for cakes n Upward sloping— indicating higher Qs supplied at higher P, lower Qs at lower P P (Price) Q (Quantity) $30 $25 $20 $15 $10 $5 25 20 18 14 10 1

n Change in PRICE reflects movement along the curve = change in quantity supplied

n Change in PRICE reflects movement along the curve = change in quantity supplied n If a change in supply is NOT caused by a change in PRICE, the entire curve will shift = change in supply

Determinants that affect supply (other than price) n Resource prices*** n Technology n Taxes

Determinants that affect supply (other than price) n Resource prices*** n Technology n Taxes (-) or subsidies (+) n Price of related goods n Expectations n Number of sellers

Supply Schedule for cakes Price Q 1 Q 2 $30 $25 $20 $15 $10

Supply Schedule for cakes Price Q 1 Q 2 $30 $25 $20 $15 $10 $5 25 20 18 14 10 1 20 15 10 8 5 0

Market Equilibrium n Quantity supplied = quantity demanded – Where the two curves intersect

Market Equilibrium n Quantity supplied = quantity demanded – Where the two curves intersect n Prices above equilibrium = surplus of supply n Prices below equilibrium = shortage of supply n Market Clearing or Market Price is another name for equilibrium

Graphs on Document Camera or Board n Surplus n Shortage n Price ceiling n

Graphs on Document Camera or Board n Surplus n Shortage n Price ceiling n Price floor n Shifts