Micro econimics - DEMAND

7/30/2019 Micro econimics - DEMAND

1/37


2/37

Demand

Demandmeans the willingness andcapacity to pay.

Prices are the tools by which the marketcoordinates individual desires.


3/37

Demand vs. QuantityDemanded

Demand is the amount of a product thatpeople are willing and able to purchase

at each possible price during a givenperiod of time.

The quantity demand is the amount of

a product that people are willing andable to purchase at one, specific price.


4/37

The Law of Demand

Law of demand there is an inverserelationship between price and quantitydemanded.

Quantity demanded rises as price falls, otherthings constant.

Quantity demanded falls as prices rise, other

things constant.


5/37

The Law of Demand

What accounts for the law of demand?

People tend to substitute for goods whoseprice has gone up.


6/37

The Demand Curve

The demand curveis the graphicrepresentation of the law of demand.

The demand curve slopes downward andto the right.

As the price goes up, the quantitydemanded goes down.


7/37

The Demand Table

The demand table assumes all thefollowing:

As price rises, quantity demanded declines.

Quantity demanded has a specific timedimension to it.

All the products involved are identical in

shape, size, quality, etc.


8/37

The Demand Table

The demand table assumes all thefollowing:

The schedule assumes that everything else is

held constant.


9/37

From a Demand Table to aDemand Curve

You plot each point in the demand tableon a graph and connect the points toderive the demand curve.


10/37


The demand curve graphically conveysthe same information that is on thedemand table.


11/37

Pric

eperDVDs(indollars)

A Demand Curve

Quantity of DVDs demanded (per week)1 2 3 4 5 6 7 8 9 10 11 12 13

$6.00

5.00

4.00

3.00

2.00

1.00.50

0

3.50

E

D

C

BFA


Price per

cassette

A

B

C

D

E

A Demand Table

DVD rentals

demanded perweek

$0.501.002.00

3.004.00

9

8

6

4

2

Demand forDVDs

G


12/37

D

Price

(peru

nit)

0

Quantity demanded (per unit of time)

PA

QA

A

A Sample Demand Curve


13/37

Demand Schedule andDemand Curve for DVDs


14/37

Other Things Constant

Other things constantplaces a limitationon the application of the law of demand.

All other factors that affect quantity demanded

are assumed to remain constant, whetherthey actually remain constant or not.


15/37

Other Things Constant

Other things constantplaces a limitationon the application of the law of demand.

These factors may include changing tastes,

prices of other goods, income, even theweather.


16/37

Demand refers to a schedule ofquantities of a good that will be boughtper unit of time at various prices, otherthings constant.

Graphically, it refers to the entire

demand curve.

Shifts in Demand VersusMovements Along a Demand

Curve


17/37

Quantity demandedrefers to a specific

amount that will be demand per unit oftime at a specific price.

Graphically, it refers to a specific point

on the demand curve.

Shifts in Demand VersusMovements Along a

Demand Curve


18/37

A movement along a demand curveis

the graphical representation of the effectof a change in price on the quantitydemanded.

Shifts in Demand VersusMovements Along a Demand

Curve


19/37

A shift in demandis the graphical

representation of the effect of anythingother than price on demand.

Shifts in Demand VersusMovements Along a

Demand Curve


20/37

Change in Quantity Demanded

D1

Change in quantity demanded(a movement along the curve)

B

0

Price

(peru

nit)

Quantity demanded (per unit of time)100

$2

$1

200

A


21/37

D0

D1

Shift in Demand

Price

(peru

nit)

Quantity demanded (per unit of time)100

$2

$1

200

B A

Change in demand(a shift of the curve)

250


22/37

Determinants of Demand

Tastes

Income

Number of buyers

ExpectationsPrices of related goods


23/37

Shift Factors of Demand

Shift factors of demand are factors thatcause shifts in the demand curve:

Society's income.

The prices of other goods.

Tastes.

Expectations.

Number of Buyers

Taxes on subsidies to consumers.


24/37

Income

An increase in income will increasedemand for normal goods.

An increase in income will decreasedemand for inferior goods.


25/37

Price of Other Goods

When the price of a substitute good falls,demand falls for the good whose price hasnot changed.

When the price of a complement goodfalls, demand rises for the good whoseprice has not changed.


26/37

Tastes

A change in taste will change demand withno change in price.


27/37

Expectations

If you expect your income to rise, you mayconsume more now.

If you expect prices to fall in the future,you may put off purchases today.


28/37

Individual and Market DemandCurves

A market demand curve is the horizontalsum of all individual demand curves.

This is determined by adding the individual

demand curves of all the demanders.


29/37

Individual and Market DemandCurves

Sellers estimate total market demand fortheir product which becomes smooth anddownward sloping curve.


30/37

From Individual Demandsto a Market Demand Curve

(1)Price percassette

$.0.501.001.502.002.503.003.504.00

(2)Alicesdemand

(3)Brucesdemand

(2)Cathysdemand

(3)Marketdemand

98765432

65432100

11000000

16141197532

ABCDEFGH Cathy Bruce Alice

D

A

C

E

F

G

Quantity of cassettes demanded per week

2

$4.00

3.50

3.002.50

2.00

1.50

1.00

0.50

0

Pric

epercassette(indollars)

4 6 8 10 12 14 16

B

Market demand

McGraw-Hill/Irwin 2004 The McGraw-Hill Companies, Inc., All RightsReserved.


31/37

Aggregation of Demand (I)


32/37

Aggregation of Demand (II)


33/37

Factors that Shift Demand

ConsumerIncome

TastesAnd

Preferences

Demographics

Expectations

Price ofRelated Goods

NumberOf

Buyers

Demand


34/37

C


35/37

Changes in Demandand Quantity Demanded

Change in Quantity Demanded -movement along the same demand curvein response to a price change.

Change in Demand - shift in entiredemand curve in response to a change

in a determinant of demand (a ceterisparibus variable)


36/37

Change in Demand vs. Changein the Quantity Demanded


37/37

The Law of Demand

The demand curve is downward slopingfor the following reasons:

At lower prices, existing demanders buy

more.At lower prices, new demanders enter the

market.

Micro econimics - DEMAND

Documents

Transcript of Micro econimics - DEMAND