- Slides: 7
Module 5 Supply and Demand: Introduction and Demand KRUGMAN'S MACROECONOMICS for AP* Margaret Ray and David Anderson
What you will learn in this Module: • What a competitive market is and how it is described by the supply and demand model • What the demand curve is • The difference between movements along the demand curve and changes in demand • The factors that shift the demand curve
Supply and Demand: A Model of a Competitive Market • Competitive Market • Supply and Demand Model i
The Demand Curve • Demand schedule • Quantity demanded • Demand curve
Demand Schedule and Demand Curve Price Quantity $8 3 $7 5 $6 7 $5 10 $4 12 $3 16 $2 22
The Demand Curve Law of demand is a fundamental characteristic of demand behavior. 1. Other things being equal, as the price increases, the corresponding quantity demanded falls. 2. Restated, there is an inverse relationship between price and quantity demanded. 3. Note the “other things being equal” assumption which refers to a handful of other factors that affect our demand for a good. These will be covered shortly.
Understanding Shifts of the Demand Curve • Increase = right, Decrease = left • M. E. R. I. T. shifts demand • market size (number of consumers) • expectations • related prices (complements, substitutes) • income (normal, inferior) • tastes