1. ECON 100 Lecture 9
Monday, March 4

2. Demand and Supply – Theory

3. The two questions we asked at the end of last week’s lecture
Eggs
Good health

4. Argue against one of these two statements
There is no substitute for good health.
There are no substitutes for eggs if you want an omelet.
using the ideas that “there are substitutes for everything”.

5. Everyone wrote interesting and insightful responses.
I enjoyed reading them all. Thank you!

6. Some of the answers are

7. 9 30 section
Choosing cigarettes over good health --İdil Özcan Sağlık için gerekli her şeyi yaparsak yaşam kalitesini azaltırız. Aykut Usman -quoted by Cihan Oklap Entertaining things can be substitiute for good health. -Bihter Niğdeli Money can be substitute for good health. -Gökhan Kızılaltun

8. 11 00 section
Yumurta yoksa ve yumurtanın yerini tutacak malzeme yoksa normal kahvaltı yapılır. (ya da pastırma ile birşeyler) -Gülşah Demirci Zeytin Peynir domates türlü reçeller – Doğukan Sağlığı azaltıp kişinin hayattan beklediği şeye yoğunlaşması ve amaca ulaşması bir alternatiftir. –Doruk Armağan -bkz. Marie Skłodowska-Curie

9. Marie Skłodowska-Curie (1867 –1934) A pioneer in research on radioactivity. She was the first woman to win a Nobel Prize, the only woman to win in two fields, and the only person to win in multiple sciences Physics; with Pierre Curie and Henri Becquerel; 1911 Chemistry, sole winner. She died from aplastic anemia believed to have been contracted from her long-term exposure to radiation.

10. 11 00 section
Yumurta yoksa ve yumurtanın yerini tutacak malzeme yoksa normal kahvaltı yapılır. (ya da pastırma ile birşeyler) -Gülşah Demirci Zeytin Peynir domates türlü reçeller – Doğukan Sağlığı azaltıp kişinin hayattan beklediği şeye yoğunlaşması ve amaca ulaşması bir alternatiftir. –Doruk Armağan -bkz. Marie Skłodowska-Curie Best answer! For max health wake up early go to sleep early; boring life. –Özge Tunçel

11. My answers to eggs, omelette (omelet), etc.,
Substitutes for eggs are all substitutes for omelettes (no one needs an omelette), such as cheese, pastırma, bread and butter, for breakfast, or salad and/or sandwich, soup, for a light lunch.
Good health (substitutes for)
Smoking
Drinking
Watching TV (sedentary life style)
Bungee jumping
Mountain climbing
Eating fruits/vegetables with heavy residue of pesticides

12. Here we start the discussion of demand and supply proper
A (not so small) number of definitions and “laws”

13. Game plan until midterm #1 (March 26)
Topics to be covered until midterm 1 (6 lectures including today):
Demand Supply and the Market equilibrium (Ch 4)
Price controls (Ch 6)
Elasticity and applications (Ch 5)
Welfare and Efficiency and (Ch 7)

14. SUPPLY AND DEMAND : HOW MARKETS WORK

15. Remember
A nice and reasonably general definition of demand is: Demand relates amounts people want to obtain to the sacrifices they must make.

16. The textbook definition of demand
Demand is a relationship between two variables: Price and the quantity demanded. Therefore demand cannot be expressed by a single number; it is not a fixed amount determined by nature. What is quantity demanded? It is a fancy term for “the amount people want to obtain.” Quantity demanded of a good is the amount that buyer(s) are willing and able to purchase.

17. Determinants of quantity demanded:
Price of the good itself
Consumer Income (normal goods, inferior goods)
Prices of related goods [substitutes and complements]
Taste
Expectations
In mathematical terms:
QD = f(P, I, P*; T, E)
QD denotes quantity demanded, the variable we call “quantity demanded” is a function of bunch of other variables which we denote by P, I, P*, T, and E.

18. Let’s for a moment…
Ignore the other factors, and focus on the price of the good. There are two ways of displaying the relationship between price and quantity demanded:

19. The Demand Schedule: The Relationship between Price and Quantity Demanded
The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded, with all other variables, such as income, prices of other goods, etc., kept constant. 17

20. Zeynep’s Demand Schedule
Price of Ice-cream cone
(in )
Quantity of Ice-cream cones demanded
0.00 12
0.50 10
1.00 8
1.50 6
2.00 4
2.50 2
3.00

21. The Demand Curve: The Relationship between Price and Quantity Demanded
The demand curve is a graph of the relationship between the price of a good and the quantity demanded, with all other variables, such as income, prices of other goods, etc., kept constant. 17

22. Zeynep’s Demand Schedule and Demand Curve
Price of
Ice-Cream Cone
3.00
2.50
2.00
1.50
1.00
0.50 1 2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream Cones
Copyright © South-Western

23. The (glorious) Law of Demand
The law of demand is the claim that, other things being equal (ceteris paribus in Latin),
if the price of a good rises, the quantity demanded falls
if the price of a good falls, the quantity demanded rises.

24. The original version of the Law of Demand (by Alfred Marshall)
"There is then one general law of demand: The greater the amount to be sold, the smaller must be the price at which it is offered in order that it may find purchasers; or, in other words, the amount demanded increases with a fall in price, and diminishes with a rise in price.“ Alfred Marshall, ( ) Principles of Economics, 8th edition (London: Macmillan, 1920), 99 [originally published in 1890]

25. Changes in Quantity Demanded
Price of Ice-Cream Cones
A tax that raises the price of ice-cream cones results in a movement along the demand curve. B
2.00 A
1.00 D 4 8
Quantity of Ice-Cream Cones

26. Market Demand versus Individual Demand

27. Market demand is the sum of all individual demands for a particular good or service. Graphically, individual demand curves are summed horizontally to obtain the market demand curve.

28. Question #1: Find the market demand
Price of the Good
Aaron
Angela
Austin
Alyssa
$0.00 20 16 4 8
0.50 18 12 6
1.00 14 10 2 5
1.50
2.00
2.50
When the price of the good is $1.00, the quantity demanded in this market is ______ units.
Whose demand does not conform to the law of demand?
If the price increases from $1.00 to $1.50, the quantity demanded in the market decreases/increases by ______ units.
For which consumer is the good a normal good?

29. Before we go on to more confusing stuff like “a change in demand” and “shifts in the demand curve”, etc.,
please remember that if the price of the product changes, there will be a change in quantity demanded, which we show as a movement along the demand curve. 19

30. A change in demand vs. a change in quantity demanded
Change in Demand is caused by a change in a determinant other than price, such as income, price of other goods, etc and is shown as a shift in the demand curve, An increase is a shift in the demand curve to the right, increase in demand means quantity demanded is higher at every price level. An decrease is a shift in the demand curve to the left, decrease in demand means quantity demanded is lower at every price level.

31. Shifts in the Demand Curve
Price of
Ice-Cream
Cones
Increase
in demand
Decrease
in demand
Demand
curve, D 2
Demand
curve, D 1
Demand curve, D 3
Quantity of
Ice-Cream Cones

32. Change in Demand
Change in Quantity Demanded

33. What makes the demand curve shift?
A change in
Consumer income
Prices of related goods
Tastes
Expectations
Number of buyers (market demand)
makes the demand curve shift 11

34. Shifts in the Demand Curve : Consumer Income
As income increases the demand for a normal good increases. As income decreases the demand for a normal good decreases. This is the definition of a normal good: A good for which demand increases (falls) as income increases (declines) is a normal good.

35. Consumer Income Normal Goods
Price of Ice-Cream Cones
3.00
An increase in income...
2.50
Increase
in demand
2.00
1.50
1.00
0.50 D2 D1
Quantity of Ice-Cream Cones 1 2 3 4 5 6 7 8 9 10 11 12

36. Shifts in the Demand Curve : Consumer Income
As income increases the demand for an inferior good decreases. As income decreases the demand for an inferior good increases. This is also the definition of an inferior good: A good for which demand decreases as income increases is an inferior good.

37. Consumer Income Inferior Goods
Price of Ice-Cream Cones
3.00
2.50
An increase in income...
2.00
Decrease
in demand
1.50
1.00
0.50 D2 D1
Quantity of Ice-Cream Cones 1 2 3 4 5 6 7 8 9 10 11 12

38. Consumer Expenditures in the United States
Income Group (1997 $)
Expenditure Less than 1, , , , , ,000-
($) on: $10,000 19,000 29,000 39,000 49,000 69,000 and above
Entertainment
Owned Dwellings
Rented Dwellings
Health Care
Food
Clothing

39. 2011 GELiRDEN GELİRDEN EN AZ PAY ALAN EN ÇOK PAY ALAN

40. Income levels Bottom 20% 2nd 20% 3rd 20% 4th 20% Top 20% Min - 917
1334
1844
2686
Max

41. Shifts in the Demand Curve: Prices of Related Goods
Goods can be related in two ways: As complements. like computers and software or As substitutes. like white cheese and yellow cheese.

42. Shifts in the Demand Curve: Prices of Related Goods
Complement goods
Cars – gasoline
Tennis balls – rackets
Computers – software
Tablets – apps
Simit – peynir, Köfte – ekmek, Tahin – pekmez
Doktor – sigara + cholesterol heavy diet
Demand for a good will increase if the price of the complement good falls.
Demand for a good will decrease if the price of the complement good increases.

43. D2 D1 Price of related good : Complement goods 3.00 2.50
A Sip and a Cone: 5 Luscious Wine and Ice Cream Pairings
Price of Ice-Cream Cone
3.00
2.50
An increase in price of a complement good, like ??????
2.00
Decrease
in demand
1.50
1.00
0.50 D2 D1
Quantity of Ice-Cream Cones 1 2 3 4 5 6 7 8 9 10 11 12

44. Shifts in the Demand Curve: Prices of Related Goods
Substitute goods
Pepsi – Coca Cola
Butter – margarine
Notebook computers – netbook computers
Beyaz peynir – kaşar peyniri
Keşkül – muhallebi
Demand for a good will increase if the price of the substitute good rises.
Demand for a good will decrease if the price of the substitute good decreases.

45. Price of a related good : Substitute goods
Price of Ice-Cream Cone
3.00
An increase in price of a substitute good, like frozen yogurt
2.50
Increase
in demand
2.00
1.50
1.00
0.50 D2 D1
Quantity of Ice-Cream Cones 1 2 3 4 5 6 7 8 9 10 11 12

46. Closing remarks
A bit confusing, but…

47. A change in demand vs. a change in quantity demanded
When the price of a good changes (for whatever reason)
this will cause a change in the quantity demanded,
but not cause a change in the demand for that good.

48. Shifts in the Demand Curve
Changes in consumers income
As income increases the demand for a normal good will increase. (Also, as income decreases the demand for a normal good will decrease.)
As income increases the demand for an inferior good will decrease. (Also, as income decreases the demand for an inferior good will increase.)

49. Shifts in the Demand Curve
Changes in the prices of related goods
When two goods are substitutes, a fall in the price of one good reduces the demand for the other one. (Also, a rise in the price of one good increases the demand for the other one.)
When two goods are called complements, a fall in the price of one good increases the demand for the other good. (Also, a rise in the price of one good decreases the demand for the other good.)

50. Variables That Influence Buyers

51. Question #2: What is the effect of these events on the demand for small cars?
Small cars become more fashionable.
The price of large cars rises (the price of small ones is the same).
Income declines (small cars are an inferior good).
A big decrease in the price of gasoline.