Demand, Supply and Price (Part 2)

1. D2 P D1 S1 P2 P1 Q Q1 Q2 0 Demand, Supply and Price (Part 2) I. Increase in Demand

2. P ($) Original Qd New Qd 6 3 6 7 8 9 5 4 4 5 3 6 Increase in demand means quantities demanded increase at all prices. Quantities demanded increase by 3 units at all prices. Be careful: Increase in demand  increase in quantity demanded

3. D2 P D1 S1 P2 P1 Q Q2 Q1 0 When demand increases, the demand curve will shift to the _____ from D1 to D2. The equilibrium price will _______ from P1 to P2 and the equilibrium quantity will _______ from Q1 to Q2. right increase increase

4. P D3 S1 P4 D4 Q P3 Q4 0 Q3 When demand decreases, the demand curve will shift to the ____ from D3 to D4. The equilibrium price will ________ from P3 to P4 and the equilibrium quantity will ________ from Q3 to Q4. left decrease decrease

5. movement along the same demand curve. Shift of the entire demand curve. D P, Q Qd P, Q Qd P, Q D P, Q Qd Qd P P Cause and Effect D D P P It is wrong to say that:

6. II. Factors affecting demand 1. Consumers’ income a. Superior goods (normal goods) income   demand  income   demand  e.g. PSP, Levi’s jeans... b. Inferior goods income   demand  income   demand  e.g. instant noodles, bread...

7. vs II. Factors affecting demand (con’t) 2. Prices of related goods a. Substitutes (competitive demand) e.g. Coca Cola and Pepsi P of Coca Cola   demand for Pepsi, v.v. b. Complements (joint demand) e.g. digital cameras and storage media P of digital cameras   demand for storage media , v.v.

8. II. Factors affecting demand (con’t) 3. Number of buyers Immigrants   demand for housing  No. of elders   demand for medical services  4. Demand for resources/factors (derived demand) • Demand for housing  • demand for construction workers and steel 

9. P D1 S1 S2 P1 P2 Q Q1 0 Q2 III. Increase in Supply When supply increases, the supply curve will shift to the _____ from S1 to S2. The equilibrium price will ________ from P1 to P2 but the equilibrium quantity will ________ from Q1 to Q2. right decrease increase

10. P S4 D1 S3 P4 P3 Q Q4 Q3 0 IV. Decrease in Supply When supply decreases, the supply curve will shift to the ____ from S3 to S4. The equilibrium price will ________ from P3 to P4 but the equilibrium quantity will ________ from Q3 to Q4. left increase decrease

11. movement along the same supply curve. Shift of the entire supply curve. S P, Q Qs P, Q Qs P, Q S P, Q Qs Qs P P Cause and Effect S S P P It is wrong to say that:

12. V. Factors affecting supply 1. Cost of production a. production cost   supply ; v.v. b. per-unit tax supply  c. per-unit subsidy  supply  Be careful:  supply curve will shift down (to the right) S S  supply curve will shift up (to the left)

13. V. Factors affecting supply (con’t) 2. Prices of related goods a. Competitive supply e.g. residential flats and cultural amenities P of flats   supply of amenities , v.v. b. Joint supply e.g. chicken legs and wings P of chicken legs   supply of wings ; v.v.

14. V. Factors affecting supply (con’t) 3. Number of sellers Number of firm   supply ; v.v. 4. State of technology Technological progress  supply  PARKnSHOP CYBERSTORE

15. D2 P P D1 D1 S1 S1 S2 P2 P1 P1 P2 Q Q Q2 Q1 Q1 Q2 0 0 P, Q P, Q VI. Change in Demand and Supply at the same time D S Por , Q

16. D2 P2 P P1 D1 S1 S2 Q2 P, Q Q Q1 0 a. increase in demand > increase in supply

17. D2 P P1 D1 S1 S2 P2 Q2 P, Q Q Q1 0 b. increase in demand < increase in supply

18. D2 P P1 D1 S1 P2= S2 Q2 P doesn’t change, Q  Q Q1 0 c. increase in demand = increase in supply

19. P, Q P, Q P, Q P, Q P, Q P, Q P, Q P, Q P, same Q same P , Q same P , Q P, same Q D D D S S S Cause and Effect > = < D S > = < > = < > = <

20. Demand, Supply and Price (Part 2) The End