CHAPTER 5 ECONOMICS DEMAND AND SUPPLY

INTERACTION PRICE AND DEMAND Demand is set by consumers How are decisions made? CD Example

W ILLING AND A BLE Demand-must be willing and able to purchase the item How Much to purchase? Quantity demanded- the amount you are willing and able to buy at a specific price

D EMAND Demand is the amount of a good or service that consumers are willing and able to buy at all prices in a give period In a given period-must be measureable Underwood Example

D EMAND S CHEDULES Price is very important to consumers Demand schedules and curves are visual representations of consumers demand based on a price In these examples all other variables are considered to be constant

MARKET DEMAND Market demand is the sum of all the individual quantities demanded in a market. Most of the time economists refer to market demand Market demand is helpful in planning business needs

LAW OF DEMAND-P RICE I NCREASE Inverse relationship between price and quantity demanded Price decreases, quantity demanded increases Why?

3 R EASONS FOR L AW OF D EMAND Law of diminishing marginal utility The Income effect Substitution effect

C HANGE IN Q UANTITY D EMANDED As consumers buy more or less based on a price change quantity demanded moves along the demand curve in and inverse direction This is known as Change in Quantity Demanded This is only caused by a change in price

SHIFTS IN IN DEMAND CURVES Other causes can change the demand-change in demand A change in demand occurs when quantities demanded increase or decrease at all prices These will cause demand curve shifts

D EMAND S HIFTERS Changes in Income Changes in number of consumers Changes in consumer tastes and preferences Changes in consumer expectations

D EMAND S HIFTERS Changes in price of substitute good Changes in price of complimentary goods