VERY IMPORTANT COW! 2

Transcription

1 Supply and 1

2 VERY IMPORTANT COW! 2

3 Review 1. What are the two key aspects of the definition of demand? 2. What is the Law of? 3. Give an example of the substitution effect 4. Give an example of the income effect 5. Give an example of the law of diminishing marginal utility 6. Explain how the law of diminishing marginal utility causes the law of demand 7. How do you determine the MARKET demand for a particular good? (from reading) 8. Name 10 fast food places 3

4 Shifts in CHANGES IN DEMAND Ceteris paribus- all other things held constant. When the ceteris paribus assumption is dropped, Changes movement no in longer price occurs along the demand curve. Rather, the entire demand curve shifts. DON T shift A shift means that at the same prices, more people are willing the and curve! able to purchase that good. This is a change in demand, not a change in quantity demanded 4

5 Change in Schedule Price of Cereal $5 Quantity Price ed $5 10 $4 20 $ What if cereal 3 makes you smarter? 2 $2 50 $ o Quantity of Cereal Q 5

6 Change in Schedule Price of Cereal $5 Price Quantity ed 4 $ $4 20 $ $ $1 80 o Quantity of Cereal Q 6

7 Change in Schedule Price of Cereal $5 Price Quantity ed 4 $ $4 20 $ $ $1 80 o Quantity of Cereal Q 7

8 Change in Schedule Price of Cereal $5 Price Quantity ed 4 $ $ $ $ $ o Quantity of Cereal Q 8

9 Change in Schedule Price Quantity ed $ $ $ Price of Cereal $ Increase in Prices didn t change but people want MORE cereal D 1 $ $ o Quantity of Cereal Q 9

10 Change in Schedule Price of Cereal $5 Quantity Price ed $5 10 $4 20 $ What if cereal 3 causes baldness? 2 $2 50 $ o Quantity of Cereal Q 10

11 Change in Schedule Price of Cereal $5 Price Quantity ed 4 $5 10 $4 20 $3 30 $ $1 80 o Quantity of Cereal Q 11

12 Change in Schedule Price of Cereal $5 Price Quantity ed 4 $5 10 $4 20 $3 30 $ $1 80 o Quantity of Cereal Q 12

13 Change in Schedule Price of Cereal $5 Price Quantity ed 4 $ $ $ $ $ o Quantity of Cereal Q 13

14 Change in Schedule Price Quantity ed $ $ $ Price of Cereal $ Decrease in Prices didn t change but people want LESS cereal $ D 2 $ o Quantity of Cereal Q 14

15 Change in Schedule Price of Cereal $5 Quantity Price ed $5 10 $4 20 $ What if the price 3 of MILK goes up? 2 $2 50 $ o Quantity of Cereal Q 15

16 What Causes a Shift in? 5 Shifters (Determinates) of : 1.Tastes and Preferences 2.Number of Consumers 3.Price of Related Goods 4.Income 5.Future Expectations Changes in PRICE don t shift the curve. It only causes movement along the curve. 16

17 Prices of Related Goods The demand curve for one good can be affected by a change in the price of ANOTHER related good. 1. Substitutes are goods used in place of one another. If the price of one increases, the demand for the other will increase (or vice versa) Ex: If price of Pepsi falls, demand for coke will 2. Complements are two goods that are bought and used together. If the price of one increase, the demand for the other will fall. (or vice versa) Ex: If price of skis falls, demand for ski boots will... 17

18 Substitutes 18

19 Substitutes 19

20 Substitutes 20

21 Substitutes 21

22 Substitutes 22

23 Substitutes 23

24 Substitutes 24

25 Complements 25

26 Income The incomes of consumer change the demand, but how depends on the type of good. 1. Normal Goods As income increases, demand increases As income falls, demand falls Ex: Luxury cars, Sea Food, jewelry, homes 2. Inferior Goods As income increases, demand falls As income falls, demand increases Ex: Top Ramen, used cars, used clothes, 26

27 Inferior Goods 27

28 Change in Qd vs. Change in Price of Cereal P $3 $2 There are two ways to increase quantity from 10 to 20 A C B 1. A to B is a change in quantity demand (due to a change in price) 2. A to C is a change in demand (shift in the curve) D 2 o Quantity of Cereal D 1 Q Cereal

29 Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Increase or Decrease Left or Right 29

30 Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease Hamburgers (a normal good) 1. Population boom 2. Incomes fall due to recession 3. Price for Carne Asada burritos falls to $1 4. Price increases to $5 for hamburgers 5. New health craze- No ground beef 6. Hamburger restaurants announce that they will significantly increase prices NEXT month 7. Government heavily taxes shake and fries causes their prices to quadruple. 8. Restaurants lower price of burgers to $.50 30