Transcript DEMAND – SUPPLY

DEMAND – SUPPLY
The Law of Demand
Holding all relevant factors constant
– quantity demanded is an inverse
function of price.
 NOTE Terminology
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This THE MOST powerful propostiton
in economics
Demand
(own) Price
 Ceteris Paribus Conditions
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Ceteris paribus Conditions
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Tastes (can’t explain where they come
from) Let others do this.
For economists tastes are unexplained
Income – normal goods/inferior goods
Prices of Other Goods – substitutes and
compliments – the movement explains the
relationship.
Expectations – but this can be a trap – be
careful – like tastes can be used to explain
anything
Size of the market – numbers
Terminology
Terminology is critical
 Changes in Quantity Demanded
 Changes in Demand
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Changes in Demand
Intuitive Forecasting
 Do this for your business
 It will make you richer
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Supply – no law of supply
(own) Price
 Ceteris Paribus Conditions
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Ceteris Paribus Conditions
Price of Factors – this creates rising
marginal costs – more later
 The level of Technology
 Natural Disruptions
 Number of Firms in market
 Expectations
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Terminology Again – but
consistant terminology
Changes in quantity supplied
 Changesin supply
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Changes in Supply
Intuitive Forecasting
 Do this for your business
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MARKETS
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Put Supply & Demand Together
– Changes in Supply
– Changes in Demand
– Think institutive forecasting for your
business
A Theory of Price Formation
Return to Equilibrium
 Changes
 Movements
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Government Intervention
Price floors
 Price ceilings
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Issues
– Why a bountiful harvest is not good for
farmers!!!
– Energy crises in California
– Free College
– Rent Control
TERMINOLOGY
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Changes in quantity demanded
Caused by changes in own price
represented by a movement along a given
demand curve
Changes on Demand
Caused by changes in ceteris paribus
conditions – represented by a shift in the
entire demand curve
What Happens if both Supply and
Demand Change
Airline Safety Regulations
 Raise Cost – decrease supply
 Safer travel – more demand
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Utility – Maximization
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Proof that demand curve has a
negative slope
Consumer Surplus
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“Extra Satisfaction for some
consumers