Supply and Demand Introduction and Demand AP Economics Mr. Bernstein Module 5: Supply and Demand Introduction and Demand October 2017

AP Economics Mr. Bernstein Competitive Markets An institution which brings together buyers and sellers of particular goods or services Local, national or international Face-to-face, electronic or other impersonal Assumption: no buyer or seller so large they affect pricing Will look at markets which are not perfectly competitive later in the course

AP Economics Mr. Bernstein Demand Schedule and Demand Curve

AP Economics Mr. Bernstein Quantity Demanded vs. Demand Quantity Demanded is a point Demand is a curve

AP Economics Mr. Bernstein Law of Demand All other things equal, as price increases the quantity demanded falls So there is an inverse relationship between price and quantity demanded Plotted on a graph, the law of demand infers a downward sloping demand curve Note: It will be important to distinguish between a change in the “quantity demanded” and a change in “demand”

AP Economics Mr. Bernstein Demand Shifters Factors which change demand other than price An increase in demand shifts the demand curve to the right A decrease in demand shifts the demand curve to the left

AP Economics Mr. Bernstein A Shift in Demand is different from movement along the Demand Curve!!

AP Economics Mr. Bernstein A Shift in Demand is different from movement along the Demand Curve!!

AP Economics Mr. Bernstein Demand Shifters Prices of related goods Substitute Goods’ price has positive relationship with demand Complimentary Goods’ price has negative relationship with demand Income Normal Goods have positive relationship with income Inferior Goods have negative relationship with income

AP Economics Mr. Bernstein Demand Shifters, cont. Tastes Positive relationship with demand Expectations Expectations of future price changes Expectations of future earnings changes Expectations of future product shortages Number of buyers Example: Demographic changes Example: Promotions and advertising

AP Economics Mr. Bernstein Demand Shifters: M E R I T Market size or More buyers Expectations Related prices (substitutes, compliments) Income changes Taste