Demand Microeconomics IB economics Demand Microeconomics

Markets Where buyers and sellers come together to carry out an economic transaction Physical place On-line Product markets Goods and services are bought and sold Factor markets Labor market- factors of production are bought and sold

Demand Quantity of a good or service that consumers are willing and able to purchase at each given price in a given time period

Movement along: P and Qd change The law of demand As the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus. All other things being equal Demand curve that normally slopes downward Movement along: P and Qd change

The law of demand Increase in demand Income effect: price falls and real income increases (amount that their incomes buy) Substitution effect: price falls and is cheaper than the competition

The non-price determinants of demand Income Normal goods: income rises demand rises Inferior goods: income rises demand falls Price of other products Substitutes: price changes = demand change for other products Complements: change in price = change in demand Unrelated goods: change in price no effect on demand Tastes/preferences

The non-price determinants of demand Other factors Size of the population Changes in the age structure of the population Changes in income distribution Government policy changes Seasonal changes

Distinction of movement on the curve and shift in demand A change in price of the good itself leads to a movement along the demand curve. Price change A change in any of the other determinants of demand will always lead to a shift of the demand curve to the left or right Quantity change at each price

Linear demand functions (HL) Demand function- equation Qd= a-bP Qd-quantity demanded A- quantity demanded if price was zero P- price B- sets slope of the curve