Laugher Curve. Demand. Demand. The Law of Demand. The Law of Demand

Transcription

1 Laugher Curve emand Q. What do you get when you cross the Godfather with an economist?. n offer you can't understand. Chapter 3-3 emand emand means the willingness and capacity to pay. Prices are the tools by which the market coordinates individual desires. emand vs. Quantity emanded emand is the amount of a product that people are willing and able to purchase at each possible price during a given period of time. The quantity is the amount of a product that people are willing and able to purchase at one, specific price. The Law of emand Law of there is an inverse relationship between price and quantity ed. Quantity ed rises as price falls, other things constant. Quantity ed falls as prices rise, other things constant. The Law of emand What accounts for the law of? People tend to substitute for goods whose price has gone up. 1

2 The The curve is the graphic representation of the law of. The curve slopes downward and to the right. s the price goes up, the quantity ed goes down. The emand Table The table assumes all the following: s price rises, quantity ed declines. Quantity ed has a specific time dimension to it. ll the products involved are identical in shape, size, quality, etc. The emand Table The table assumes all the following: The schedule assumes that everything else is held constant. From a emand Table to a You plot each point in the table on a graph and connect the points to derive the curve. From a emand Table to a The curve graphically conveys the same information that is on the table. From a emand Table to a C E emand Table Price per cassette $ V rentals ed per week Price per Vs (in dollars) $ E 3.5 G C emand for Vs F Quantity of Vs ed (per week) 2

3 Sample emand Schedule and for Vs Price (per unit) P Q Quantity ed (per unit of time) Other Things Constant Other things constant places a limitation on the application of the law of. ll other factors that affect quantity ed are assumed to remain constant, whether they actually remain constant or not. Other Things Constant Other things constant places a limitation on the application of the law of. These factors may include changing tastes, prices of other goods, income, even the weather. Shifts in emand Versus Movements long a emand Curve emand refers to a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant. Graphically, it refers to the entire curve. Shifts in emand Versus Movements long a Quantity ed refers to a specific amount that will be per unit of time at a specific price. Graphically, it refers to a specific point on the curve. 3

4 Shifts in emand Versus Movements long a emand Curve movement along a curve is the graphical representation of the effect of a change in price on the quantity ed. Shifts in emand Versus Movements long a shift in is the graphical representation of the effect of anything other than price on. Change in Quantity emanded Shift in emand Price (per unit) $2 $1 Change in quantity ed (a movement along the curve) Price (per unit) $2 $1 Change in (a shift of the curve) Quantity ed (per unit of time) Quantity ed (per unit of time) eterminants of emand Shift Factors of emand Income Tastes Prices of related goods Number of buyers Expectations Shift factors of are factors that cause shifts in the curve: Society's income. The prices of other goods. Tastes. Expectations. Number of uyers Taxes on subsidies to consumers. 4

5 Income n increase in income will increase for normal goods. n increase in income will decrease for inferior goods. Price of Other Goods When the price of a substitute good falls, falls for the good whose price has not changed. When the price of a complement good falls, rises for the good whose price has not changed. Tastes change in taste will change with no change in price. Expectations If you expect your income to rise, you may consume more now. If you expect prices to fall in the future, you may put off purchases today. Individual and Market emand Curves market curve is the horizontal sum of all individual curves. This is determined by adding the individual curves of all the ers. Individual and Market emand Curves Sellers estimate total market for their product which becomes smooth and downward sloping curve. 5

6 From Individual emands to a Market ggregation of emand (I) (1) Price per cassette (2) lice s (3) ruce s (2) Cathy s (3) Market $ $ E C C 1.5 E F G H Cathy ruce lice Market Quantity of cassettes ed per week Price per cassette (in dollars) G F McGraw-Hill/Irwin 24 The McGraw-Hill Companies, Inc., ll Rights Reserved. ggregation of emand (II) Factors that Shift emand Number Of uyers Consumer Income Price of Related Goods emand Tastes nd Preferences Expectations emographics Taxes and Subsidies Taxes levied on consumers increase the cost of goods to consumers, thereby reducing. Subsidies have an opposite effect. Not in your book but something you should think about Changes in emand and Quantity emanded Change in Quantity emanded - movement along the same curve in response to a price change. Change in emand - shift in entire curve in response to a change in a determinant of (a ceteris paribus variable) 6

7 Change in emand vs. Change in the Quantity emanded The Law of emand The curve is downward sloping for the following reasons: t lower prices, existing ers buy more. t lower prices, new ers enter the market. 7