ECONOMICS UNIT 2 MICROECONOMICS Lecture 2 Intro to

ECONOMICS UNIT #2 MICROECONOMICS Lecture #2 Intro. to markets and demand

MARKETS • Institutions or mechanisms which bring together buyers and sellers of goods, services, or resources

DEMAND The consumer’s willingness and ability to buy a good/service at a series of possible prices during a given time period. https: //www. youtube. com/watch? v =u. Xl. ZIn 6 W 7 Ew

QUANTITY DEMANDED • The quantity of a good or service a consumer is willing and able to buy at each particular price during a given time period. • https: //www. youtube. com/watch? v=a TSwc. XJ 700 c

LAW OF DEMAND • As price increases, quantity demanded decreases; as price decreases, quantity demanded increases, other things being equal • https: //www. youtube. com/watch? v=Q v. GLc. CTXk 9 o

Catherine’s Demand Schedule

Figure 1 Catherine’s Demand Schedule and Demand Curve Price of Ice-Cream Cone $3. 00 2. 50 1. A decrease in price. . . 2. 00 1. 50 1. 00 0. 50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 2. . increases quantity of cones demanded. Copyright © 2004 South-Western

MARKET VS. INDIVIDUAL DEMAND • Each consumer has his own demand for a product • The market demand curve is the sum of all of the individual demand curves

Changes in Quantity Demanded Price of Ice. Cream Cones B $2. 00 A tax that raises the price of ice-cream cones results in a movement along the demand curve. A 1. 00 D 0 4 8 Quantity of Ice-Cream Cones

A CHANGE IN DEMAND • A change (shift) in demand leads to an entirely new demand curve • The curve will shift to the right (increase in demand) or to the left (decrease in demand) • A change in demand is not caused by a change in price, but by one or more of the determinants of demand

DETERMINANTS OF DEMAND • Tastes and Preferences of the consumer • Related Goods Prices – Substitutes – complements • Income of the Consumer • # of Buyers (size of the market) • Expectations of the consumer

Figure 3 Shifts in the Demand Curve Price of Ice-Cream Cone Increase in demand Demand curve, D 3 0 Demand curve, D 1 Demand curve, D 2 Quantity of Ice-Cream Cones Copyright© 2003 Southwestern/Thomson Learning

Consumer Income Normal Good Price of Ice. Cream Cone $3. 00 An increase in income. . . 2. 50 Increase in demand 2. 00 1. 50 1. 00 0. 50 D 1 0 1 2 3 4 5 6 7 8 9 10 11 12 D 2 Quantity of Ice-Cream Cones

Consumer Income Price of Ice- Inferior Good Cream Cone $3. 00 2. 50 An increase in income. . . 2. 00 Decrease in demand 1. 50 1. 00 0. 50 D 2 0 1 D 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones

INCOME EFFECT • The change in consumption resulting from a change in real income – Rising prices make us feel poorer, our budget won’t buy as much; opposite is true for falling prices

SUBSTITUTION EFFECT • When consumers react to an increase in a good’s price by consuming less of that good and more of other goods – Ex. price of hot dogs goes up, Qd of hot dogs goes down and demand for hamburgers goes up; reverse if hot dog prices go down

Price Quantity $1 10 $2 7 $3 5 $4 2 1. Plot the demand schedule to the left on a graph and label it D. 2. Assume that the price is $2 and goes up To $3. The quantity falls from 7 to 5. This would be a ____ in ___________. 3. Now shift your demand curve to the right and Label it D 1. The new curve indicates that there has been an _____ in demand. 4. Now shift the first demand curve to the left And label it D 2. The new curve indicates that There has been a _______ in demand. 5. Give 2 examples of something that could have Caused the shifts in #3 and #4.