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What did you study last time?. Chapter 4 The Market Forces of Demand & Supply Introduction. What do you study now?. Chapter 4 The Market Forces of Demand & Supply Demand. Do you know …. how much of a good/service that a buyer buys? what happens when the price of the good/service changes?

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What did you study last time
What did you study last time?

Chapter 4

The Market Forces of Demand & Supply

Introduction

CRC Economics


What do you study now
What do you study now?

Chapter 4

The Market Forces of Demand & Supply

  • Demand

CRC Economics


Do you know
Do you know …

  • how much of a good/service that a buyer buys?

  • what happens when the price of the good/service changes?

  • what happens when factors other than the price of the good/service change?

  • how to find market demand?

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1 how much of a good service does a buyer buy
1. How much of a good/service does a buyer buy?

  • The quantity that a buyer buys depends on:

    • the price of the good/service, and

    • other factors.

  • Let us define:

    • Qd as the quantity demanded (how much one is willing and able to buy), and

    • P as the price of the good/service

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1 how much of a good service does a buyer buy1
1. How much of a good/service does a buyer buy?

  • The general demand function is written as:

    Qd = f (P, other factors)

    where f means a function of or depends on

  • The relationship between Qd and P, with other factors assumed to be constant, is called demand (D).

    Qd = f (P), other factors = constant (D)

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1 how much of a good service does a buyer buy2
1. How much of a good/service does a buyer buy?

  • Demand can be expressed as

    • a schedule (table),

    • a curve (graph), or

    • an equation (function).

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2 what happens when the price of the good service changes
2. What happens when the price of the good/service changes?

  • The law of demand

  • Demand schedule (table)

  • Demand curve (graph)

  • Demand equation (function)

  • A general demand curve

  • Movement along the demand curve

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A the law of demand
a. The law of demand

  • Ceteris paribus, if price (P) falls, then quantity demanded (Qd) rises, and vice versa.

    • Ceteris paribus is an assumption.

    • It means that other factors are assumed to be unchanged.

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A the law of demand1
a. The law of demand

  • The law of demand states that if other things being the same, people would buy less of a good if the price of the good is higher. They would buy more if the price is lower.

  • Qd = f (P), ceteris paribus, so

    • if P rises, Qd falls, or

    • if P falls, Qd rises.

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A the law of demand2
a. The law of demand

  • For example, today a person stops at a gas station for gasoline. He/she bought 10 gallons last week and paid $3.00 for a gallon.

  • If today the price is $4.00, it is likely that he/she would buy less than 10 gallons.

  • If today the price is $2.00, it is likely that he/she would buy more than 10 gallons.

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2 demand schedule table
2. Demand schedule (table)

Point

P

Qd

a

$0.0

12

At different

prices, a

consumer

would buy

different

amounts.

b

$0.5

10

c

$1.0

8

d

$1.5

6

e

$2.0

4

f

$2.5

2

g

$3.0

0

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C demand curve graph
c. Demand curve (graph)

P

$4.0

Plotting and connecting the points

in the demand schedule, we trace

out the demand (D) curve.

$3.0

$2.0

D

$1.0

Q

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0

4

12

2

6

8

10


D demand equation function
d. Demand equation (function)

P

What is the function of the demand curve shown?

$4.0

P = slope*Qd + VI = -1/4 Qd + 3

$3.0

$2.0

D

$1.0

Q

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0

4

12

2

6

8

10


E a general demand curve
e. A general demand curve

P

Ceteris paribus,

  • At P1, the consumer is

  • at point A, buying Q1.

if P is down, Qd is up,

A

and vice versa.

P1

2. When the price falls to P2,

the consumer is at point B,

buying Q2.

B

3. The demand (D) curve is

the curve going through

two points A and B.

P2

D

O

Q

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Q1

Q2


F movement along the demand curve or d qd is caused by a change in price
f. Movement along the demand curve, or DQd, is caused by a change in price.

P

4. A change in price causes a change in quantity demanded;

this is shown as a movement along the existing demand curve.

3. DP => DQd

D

$3.0

2. At P= $2, the buyer is

at point e, buying 4 units.

e

$2.0

1. At P=$.5, the buyer is

at point b, buying 10 units.

DP

b

$0.5

Q

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0

12

4

10

DQd


F movement along a demand curve change in quantity demanded d qd
f. Movement along a demand curve = change in quantity demanded (DQd)

P

1. Suppose that consumers are at point A originally.

B

P1

A decrease in Qd

DP

2a. Then P

rises, …

A

P0

An increase in Qd

2b. or P

falls, …

DP

C

P2

D

DQd

DQd

O

Q

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Q1

Q0

Q2


3 what happens when factors other than the price of the good service change
3. What happens when factors other than the price of the good/service change?

  • What are other factors?

  • What happens when other factors change?

  • Shifts (or changes) in demand

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A what are other factors
a. What are other factors? good/service change?

  • Other factors affecting (changing) demand include:

    • Income/wealth

    • Prices of other related goods(substitutes & complements)

    • Tastes/preferences

    • Expectations

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B what happens when other factors change
b. What happens when other factors change? good/service change?

  • If the price (P) of the good/service is the same and

  • any of the other factors changes,

  • then at the same price (P), Qd changes,

  • so demand (D) changes.

  • This is shown by a shift in the entire demand curve.

  • If DP = 0, D other factors => DQd = DD

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1 what happens when income wealth changes
1) What happens when income/wealth changes? good/service change?

  • Suppose that a consumer has more income/wealth. At the same price (P),

  • he or she would buy more of normal goods, e.g. new cars, or

  • he or she would buy less of inferior goods, e.g. used cars.

  • Changes in income/wealth change the demand for goods/services.

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2 what happens when the prices of related goods change
2) What happens when the prices of related goods change? good/service change?

  • Suppose that a consumer plans to buy Pepsi.

  • Suppose further that Coke is on sale, so Coke is cheaper compared to Pepsi.

  • If either soft drink is OK with the consumer, she would likely buy Coke, instead of Pepsi.

  • Pepsi and Coke are substitutes.

  • The change in the price of a related good, Coke, changes the demand for another good, Pepsi.

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2 what happens when the prices of related goods change1
2) What happens when the prices of related goods change? good/service change?

  • Suppose that a consumer plans to buy a big SUV and the price of gasoline increases.

  • The consumer may decide to drop her plan to buy the SUV, and settle with a small compact.

  • Cars and gasoline are complements. They are used together.

  • The change in the price of a related good, gasoline, changes the demand for another good, SUV.

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3 what happens when tastes preference change
3) What happens when tastes/preference change? good/service change?

  • Suppose that a research report just came out saying that drinking wine moderately will be good for the heart.

  • Many consumers will start buying wine.

  • The change in tastes/preferences changes the demand for a good.

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3 what happens when expectations change
3) What happens when expectations change? good/service change?

  • Suppose that the government will impose a new tax on gasoline starting tomorrow.

  • Many consumers will fill up their gas tanks TODAY.

  • Expectations change the demand for a good.

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C shift change in demand d d is caused by a change in other factors
c. Shift/Change in demand ( good/service change?DD) is caused by a change in other factors

P

3. A change in other factors causes

a shift in the demand curve.

A

B

2. At the same price, a

factor changes, the

consumer is at point B

on D1 buying Q1.

P0

DD

  • At P0, a consumer

  • is at point A on D0,

  • buying Q0.

D1

DQd

D0

O

Q

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Q0

Q1


C shift in demand change in demand d d
c. Shift in demand good/service change?=change in demand (DD)

P

3. A change in other

factors increases

demand, shifting

the demand curve

to the right.

  • Suppose that consumers

  • are at point A originally.

C

B

A

P0

Decrease in D

Increase in D

2. A change in other factors

decreases demand, shifting

the demand curve to the left.

D1

D0

D2

O

Q

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Q2

Q0

Q1


4 how to find the market demand
4. How to find the market demand? good/service change?

  • The market demand is the horizontal summation of all individuals’ demands for a particular good or service.

  • Qd(market) = S Qd(individuals) @each P

  • A new factor (the number of buyers) is added to the list of other factors.

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Now you know
Now you know … good/service change?

  • how much of a good/service that a buyer buys.

  • what happens when the price of the good/service changes.

  • what happens when factors other than the price of the good/service change.

  • how to find the market demand.

CRC Economics


Summary
Summary good/service change?

  • How much of a good/service that a buyer buys depends on its price and otherfactors.

  • When the price of a good increases, a buyer would often buy less.

  • When the price of a good decreases, a buyer would often buy more.

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Summary1
Summary good/service change?

  • The condition is that other factors stay unchanged.

  • The change in price causes a movement along the existing demand curve.

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Summary2
Summary good/service change?

  • When other factors change, even at the same price, a buyer would often buy a different amount.

  • The changes in other factors cause shifts in the demand curve.

  • The market demand is the sum of all buyers’ demands.

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What did you study
What did you study? good/service change?

Chapter 4

The Market Forces of Demand & Supply

  • Demand

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What will you study next
What will you study next? good/service change?

Chapter 4

The Market Forces of Demand & Supply

  • Supply

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What did you study last time

See You! good/service change?

Take Care!

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