1. Supply and Demand Introduction and Demand
AP Economics
Mr. Bernstein
Module 5:
Supply and Demand Introduction and Demand
October 1, 2014

2. AP Economics Mr. Bernstein
Competitive Markets
An institution which brings together buyers and sellers of particular goods or services
Local, national or international
Face-to-face, electronic or other impersonal
Assumption: no buyer or seller so large they affect pricing
Will look at markets which are not perfectly competitive later in the course

3. AP Economics Mr. Bernstein
Demand Schedule and Demand Curve

4. AP Economics Mr. Bernstein
Quantity Demanded vs. Demand
Quantity Demanded is a point
Demand is a curve

5. AP Economics Mr. Bernstein
Law of Demand
All other things equal, as price increases the quantity demanded falls
So there is an inverse relationship between price and quantity demanded
Plotted on a graph, the law of demand infers a downward sloping demand curve
Note: It will be important to distinguish between a change in the “quantity demanded” and a change in “demand”

6. AP Economics Mr. Bernstein
Demand Shifters
Factors which change demand other than price
An increase in demand shifts the demand curve to the right
A decrease in demand shifts the demand curve to the left

7. AP Economics Mr. Bernstein
A Shift in Demand is different from movement along the Demand Curve!!

8. AP Economics Mr. Bernstein
A Shift in Demand is different from movement along the Demand Curve!!

9. AP Economics Mr. Bernstein
Demand Shifters
Prices of related goods
Substitute Goods’ price has positive relationship with demand
Complimentary Goods’ price has negative relationship with demand
Income
Normal Goods have positive relationship with income
Inferior Goods have negative relationship with income

10. AP Economics Mr. Bernstein
Demand Shifters, cont.
Tastes
Positive relationship with demand
Expectations
Expectations of future price changes
Expectations of future earnings changes
Expectations of future product shortages
Number of buyers
Example: Demographic changes
Example: Promotions and advertising

11. AP Economics Mr. Bernstein
Demand Shifters: M E R I T
Market size or More buyers
Expectations
Related prices (substitutes, compliments)
Income changes
Taste