1. Price and Quantity Demanded.
DEFINITION 1:
Demand is a relationship between two specific variables:
Price and Quantity Demanded.
[a number of other relevant variables are kept constant]

2. DEFINITION 2:
Quantity demanded of a good is the amount of that good that buyer(s) are willing and able to purchase

3. Determinants of quantity demanded
1 Price of the good 2 Consumer’s Income 3 Price of related goods [substitutes and complements] 4 Taste 5 [Expectations]

4. Demand Curve
The individual demand curve shows the quantity demanded at each price by one consumer.

5. one more time….
The demand curve gives the relationship between price and quantity demanded, assuming that all other determinants of quantity demanded are kept constant.

6. The Law of Demand
Other things being equal, the quantity demanded of a good rises when the price of the good falls. [Also, when the price rises, quantity demanded falls.]

7. 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

8. Alfred Marshall’s version of L of D
"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]

10. Change in demand vs Change in Quantity Demanded
Very important statement:
A change in the price of a good will cause a change in the quantity demanded of that good, but will not cause a change in the demand for that good.

11. Change in Demand
Change in Quantity Demanded

12. Change in Quantity Demanded
Movement along the demand curve.
Caused by a change in the market price of the product.
 Change in Demand
A shift in the demand curve, either to the left or right.
Caused by a change in a determinant other than price.

13. Shifts in the demand curve
1. Consumer Income
As income increases, the demand for a normal good will increase.
[As income decreases, the demand for a normal good will decrease.]
As income increases, the demand for an inferior good will decrease.
[As income decreases, the demand for an inferior good will increase.]

14. Normal good

15. Inferior good

16. Related goods: Substitutes
Substitutes are goods that can serve as replacements for one another; Therefore, when the price of one increases, demand for the other goes up. Perfect substitutes are identical products.

17. Related goods: Complements
Complements are goods that “go together”; a decrease in the price of one results in an increase in demand for the other, and vice versa.

18. Complements (complementary goods): Peanut butter and jelly
When the price of peanut butter rises, demand for jelly falls, that means : the demand curve for jelly shifts to the left.

19. Substitute goods : Tea and Coffee
When the price of coffee rises, demand for tea increases, that means : the demand curve for tea shifts to the right.

20. Taste

21. Expectations A change in expectations
If consumers believe the price will increase in the future, demand increases today (when the good is cheaper); this shifts the demand curve to the right.

22. From individual demand curves to the market demand curve

23. Determinants of quantity supplied
SUPPLY
DEFINITION 1. Supply is a relationship between two (2) specific variables: Price and quantity supplied.
DEFINITION 2. The quantity supplied of a good is the amount of a good that sellers are willing and able to produce.
 Determinants of quantity supplied
Price of the good
Input prices
Technology
[Expectations]

24. The Supply (Curve)
The supply curve gives the relationship between price and quantity supplied, assuming that all other determinants of supply (e.g., input prices, technology, etc.) are constant.

25. A supply curve for candy bars

26. The LAW of Supply
Other things being equal, the quantity supplied of a good rises when the price of the good rises.

27. A supply curve for ice-cream

28. From the individual supply (curves) to the market supply (curve)
The market supply curve is the horizontal sum of the supply curves of all the suppliers.
Just as individual supply curves have a positive slope, so do market supply curves.

29. Change in Quantity Supplied is a Movement along the supply curve.
It is caused by a change in the market price of the product.
Change in Supply is a shift in the supply curve, either to the left or right.
It is caused by a change in a determinant other than price. (input prices or technology)

31. Shifts in the supply curve
Price of
Supply curve, S 3
Ice-Cream
curve,
Supply S 1
Cone
Supply
curve, S 2
Decrease
in supply
Increase
in supply
Quantity of
Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning

32. Variable A change in this variable Price a movement along the supply curve Input prices an increase shifts the supply to the left a decrease shifts the supply to the right Technology an improvement shifts the supply to the right