1. Economics 100 Lecture 5 Demand and Supply (I)

2. Demand and Supply  Opportunity Cost and Price  Demand

3. Opportunity Cost and Price  Demand and supply explain how prices and quantities bought and sold are determined  Price is relative price  A relative price is an opportunity cost

4. Demand  The quantity demanded is the amount of a good or service that consumers plan to buy in a given period of time and in given conditions (of income, tastes, other goods prices, etc.)

5. What determines buying plans?  The price of the good  The prices of related goods  Expected future prices  Income  Population  Tastes

6. The Law of Demand  Other things remaining the same, the higher the price of a good, the lower is the quantity demanded of that good  Reasons: £ substitution effect £ income effect

7. Demand  Demand is the quantity demanded at each price  Demand is illustrated by a £ Demand schedule £ Demand curve

8. The Demand Schedule Price Quantity demanded ($/tape) (mill. tapes/week) a 1 9 b 2 6 c 3 4 d 4 3 e 5 2

9. The Demand Curve  Figure shows a demand curve

10. Demand Curve  Two meanings of the demand curve £ Quantity bought at a given price £ Maximum willingness to pay for the last unit bought of a given quantity

11. What makes demand change? 1. The prices of other goods Substitutes Complements 2. Income Normal goods Inferior goods 3. Population 4. Preferences (tastes)

12. A Change in Demand Price Quantity demanded ($/tape) (mill. tapes/week) (W. $200) (W. $50) a 1 9 13 a' b 2 6 10 b' c 3 4 8 c' d 4 3 7 d' e 5 2 6 e'

13.  Figure shows a change in demand  When demand changes, the demand curve shifts A Change in Demand

14.  When the price of a good changes, there is a change in the quantity demanded, which is shown by a movement along the demand curve  When any other influence on buying plans changes, there is a change in demand, which is shown by a shift of the demand curve Change in quantity demanded vs. Change in demand