Consumer Demand Theory Ceteris Paribus (cont’d) 10-7-2010 Econ 100 Lecture 2.2 Consumer Demand Theory Ceteris Paribus (cont’d) 10-7-2010

Overview Individual and Market Demand Curves Factors that Shift Demand Curves More useful websites

From the Demand Side First Law of Demand What Does Law Of Demand Mean? all other factors being equal, as the price of a good or service increases, consumer demand for the good will decrease and vice versa.  http://www.investopedia.com/terms/l/lawofdemand.asp

Changes in Demand (cont’d)

Factors That Can Shift Demand Individual and Market Demand Curves Income Price of Substitutes Price of Compliments Product Quality Future Prices Taste and Preferences Market Demand Curves Population (market)

Market Demand: Maybe a little bit different Market Demand may be kinked as new buyers enter at different price points When it’s only Tom – Tom’s D is the market Harry joins the Market Dick joins

Table 4.1 Factors That Shift the Demand Curve

What We’ve Learned Buy rule for consumers (Qd: P=MV) Consumers will buy x units up to the point that price equals MV for the last (xth) unit First law of demand: demand curves are downward sloping Negative slope  diminishing marginal value of consuming next unit

An In Class Problem Seattle Times Oct 3, 2007 Olympic National Park officials are suggesting raising the price of an entrance pass for motorists — good for seven days — from $15 to $25 starting in 2009, with the fee for individuals such as cyclists climbing from $5 to $12. Season passes would increase from $30 to $50 But public response, particularly from tourist-dependent local businesses has been generally negative said a spokeswoman for Olympic National Park. Illustrate the effect of the increase of the price for park passes on the demand for trips to the park 2. Illustrate how the park fee increase would affect the demand for other tourist-related businesses, e.g., hotels, restaurants.

Useful Websites Understanding differences between factors that cause shifts in demand or supply http://hspm.sph.sc.edu/COURSES/ECON/SD/SD.html Basics of demand and supply http://www.investopedia.com/university/economics/economics3.asp Cobweb theorem http://www.bized.co.uk/current/mind/2004_5/251004.ppt