Transcript Demand

Markets, demand, and supply
A market is an institution
in which buyers and
sellers exchange goods
and services for
a medium of exchange
--money
What is demand?
Definitions:
Demand: The quantities of a good or service
buyers are willing (and able) to buy at
alternative market prices, ceteris paribus.
Quantity demanded: The quantity of a good
or service buyers are willing (and able) to buy
at a specific price, ceteris paribus.
Demand curve: The schedule indicating the
quantities demanded of a good or service at
alternative market prices, ceteris paribus.
Law of demand: ceteris paribus, price and
quantity demanded of a good or service are
negatively related
These include:
The price of
substitute goods
The price of
complementary
goods
Consumer
income
Tastes and
preferences
When it comes to the question of
how much people are willing to buy
of a good or service, price is clearly
a factor. However, there are
important non-price determinant of
demand as well.
The demand for pineapple
The demand for pineapple
depends on:
The price of pineapple
The price of cantaloupe
The price of bananas
Consumer income
Consumer tastes
As we move along
the demand curve
for, all factors
are held constant
except the price
of pineapple
Why is the demand curve
downward sloping?
Because of the
substitution effect
Price
P2
P1
D
0
q1
q2
Quantity
Here we derive the market
demand curve by
summing up the individual
demand curves for pineapple
(1)
Price
(2)
Anita's QD
(per month)
$2.50
1
(3)
Bo's QD
(per month)
2
(4) = (3) + (2)
Total QD
(per month)
3
2.00
2
4
6
1.50
3
7
10
1.00
4
8
12
Price ($)
Anita
2.50
BO
2.00
1.50
Market
demand
1.00
0
3
4
6
7
10
12 Quantity
Demand could shift
right due to:
Price
P2
A
Increase in the price
of substitutes
H
P1
Decrease in the price
of complements
B
D2 Increase in income
D1
0
q1
q2
Quantity
Change of tastes and
preferences
Demand could shift left
due to:
Price
Decrease in the price
P2
A
of substitutes
H
Increase in the price
P1
of complements
B
D1 Decrease in income
D0
0
q1
q2
Change of tastes and
preferences
Quantity
The supply curve is the
schedule indicating the
quantities of a good or
service sellers are willing
to offer for sale at
alternative market prices,
ceteris paribus
The supply of salmon
Price/lb.
Quantity-Supplied Quantity(lb’s)
Demanded
(lb’s)
$2.50
0
1,200
3.50
4.50
200
400
900
750
5.50
550
550
6.50
670
425
7.50
780
325
Price/lb
Supply
$6.50
$5.50
$4.50
$3.50
$2.50
0
200
400 550
670
Quantity (lbs)
Price/lb
Supply
$6.50
Note that
supply is
equal to
demand at a
price of $5.50
$5.50
$4.50
Demand
$3.50
$2.50
0
200
400 550 670 750
900
Quantity (lbs)
Price
S1 to S2 explained by:
S1
S2
P2
A
•increase in the
number of sellers
•decrease in input
prices (machinery,
fertilizer, labor, etc.)
B
P1
•good weather
D
0
q1
q2
Quantity