Transcript Document
The Law of Demand
Change in Quantity Demanded
A movement from on point
on the demand curve to
another is a change in
quantity demanded.
This movement is caused by
a change in price of the
product.
ONLY a change in the price
of the product will cause a
change in the quantity of
product demanded.
A shift in the curve is
caused by factors other than
Change in Demand (Shifts in
Demand Curve)
An increase in
demand means
people are willing
and able to buy more
at each price.
A decrease in
demand means
people are willing
and able to buy less
at each price.
Factors That Shift Demand
Factors that Shift the Market Demand
– A change in income
inferior
vs. normal goods
– A change in tastes or preferences
– A change in the price of related goods
compliments
vs. substitutes
– Number of consumers in the market
– A change in the expected future price of the
good (consumer expectations)
– A change in consumer information
Consumer Surplus
Demand price is the
maximum consumers
would be willing to pay
Consumers would happily
pay a lower price
Consumer surplus is the
value received for goods in
excess of the price paid for
it.
Because there is consumer
surplus in a market
economy, consumers are
better off!
Substitution and Income Effects
– Why the demand curve is downward sloping!
Income
effect: When the price of a good falls,
consumers experience an increase in purchasing
power.
Substitution
effect: When the price of the good
changes, consumers will substitute toward the now
relatively less expensive good.
Diminishing Marginal Utility
– As more is consumed, the marginal utility is smaller.
Utility-Maximizing Rule
MUx/Px=MUy/Py
Demand Shift? If Demand Shifts, Inc/Dec? Curve
Shifts Left/Right? Why?
What impact do the following headlines have for
the demand for beef?
Price of Beef Rises in June
Millions of Immigrants Swell US Population
Pork Prices Drop
Surgeon General Warns that Eating Beef is
Hazardous to Health
Beef Prices Fall; Consumers Buy More
Real Income for US Drops for Third Month
Charcoal Shortage Threatens Memorial Day
Cookouts
Nationwide Fad: The Disco Burger