1. Module 5 Feb 2015

2.  Market – a group of producers and consumers who exchange a good or service for payment  Competitive Market – a market where there are many buyers and sellers of the same good or service  Supply and Demand Model – a model of how a competitive market works

3.  The Demand Curve  The Supply Curve  The set of factors that cause the demand curve to shift and the set of factors that cause the supply curve to shift  The market equilibrium, which includes the equilibrium price and equilibrium quantity  The way the market equilibrium changes when the supply curve or demand curve shifts

4.  Demand Schedule – a table showing how much of a good or service consumers will want to buy at different prices ◦ So, if you want to buy a candy bar – you might buy 3 if they are 50 cents each. But if they are a dollar each, you might buy just one. QuantityCost 535 cents 445 cents 350 cents 11 dollar

5.  Quantity Demanded – The actual amount consumers are willing to buy at specific prices  When prices rise – the quantity demanded falls  When prices fall – the quantity demanded rises  Graphing this information creates a Demand Curve and nearly always, this curve is downward sloping  This is the Law of Demand – at a higher price, all other things being equal, people demand a smaller quantity

6.  Always keep in mind, all other things equal  Suppose that it is discovered that candy bars cause your hair to fall out, what would that do to price and demand?  Create a demand schedule using the following information:  50 cents – 1, 30 cents – 2, 25 cents – 3, 10 cents - 5

7.  Using the data from the ORIGINAL demand schedule, create a demand curve.  On the same graph, create the demand curve for the new data.  Which way did the demand curve shift? Indicate with an arrow between the two curves

8.  Change in demand – a shift of the demand curve, which changes the quantity demanded at any given price represented by the shift in position or the original demand curve, D 1 to its new location at D 2.  A shift in the demand curve is NOT the same as movement along the demand curve which is the result of a change in that good’s price.  Shifts to the left are decreases, shifts to the right are increases

9.  There are believed to be five factors that shift the demand curve for a good or service: ◦ Changes in the prices of related goods or services ◦ Changes in income ◦ Changes in tastes ◦ Changes in expectations ◦ Changes in the number of consumers

10.  A pair of goods are Substitutes if a rise in the price of one of the goods leads to an increase in the demand for the other good.  Two goods are Complements if a rise in the price of one of the goods leads to a decrease in the demand for the other good.  When a rise in income increase the demand for a good, it is a Normal Good.  When a rise in income decreases the demand for a good, it is an Inferior Good.

11.  Tastes, everyone has them. Today, leggings are en vogue, and there is demand for them. In the ‘50s, women liked poodle skirts, but the demand for them has decreased.  Changes in expectations – current demand for a good is often affected by expectations about its future price. If a consumer knows that something will go on sale, they will wait for the price to drop. Conversely, if they know the price will increase, they will buy now.

12.  Individual demand curve illustrates the relationship between quantity demanded and price for an individual consumer.  Market demand is the horizontal sum of the individual demand curves of ALL consumers.  See figure 5.5 on page 55  Also, see Table 5.1 on page 56 and integrate into your brain cells!!!! I will be asking you about the shifts on an upcoming test.  Answer the ?? At the end of module 5.