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Essentials of Economics - 1: Chapter 2,3,4

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23 views17 pages

Essentials of Economics - 1: Chapter 2,3,4

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viksithv
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Essentials of Economics - 1

Chapter 2,3,4
Where Prices Come From: The
Interaction of Demand and Supply
• Discuss the variables that influence the
demand for goods and services.
• Discuss the variables that influence the
Learning supply of goods and services.
• Explain how equilibrium in a market is
objectives reached, and use a graph to illustrate
market equilibrium.
• Use demand and supply graphs to
predict changes in prices and quantities.
The basic of
demand and
supply
theories

In class video: https://www.youtube.com/watch?v=720uyg0Dd_M


• Quantity demanded: The amount of a
good or service that a consumer is willing
and able to buy at a given price.
• Demand schedule: A table showing the
relationship between the price of a
product and the quantity of the product
demanded.
The demand
• Demand curve: A curve that shows the
side of the relationship between the price of a
product and the quantity of the product
market demanded.
• Market demand: The demand by all the
consumers of a given good or service.
Demand schedule and demand curve: Figure
3.1
• The law of demand: Holding everything else
constant, when the price of a product falls the
quantity demanded will increase, and when
the price of a product rises the quantity
demanded will decrease.
• Holding everything else constant: The ceteris
The demand paribus condition.
• Ceteris paribus (‘all else being equal’): The
side of the requirement that when analysing the
relationship between two variables—such as
market price and quantity demanded—other
variables must be held constant.

•
• The substitution effect: The
change in the quantity demanded
What explains of a good or service that results
from a change in price, making the
the law of good or service more or less
expensive relative to other goods
demand? (1 of and services that are substitutes
2) (holding constant the effect of the
price change on consumer
purchasing power).
•
• The income effect: The change in
What explains the quantity demanded of a good
or service that results from the
the law of effect of a change in price on
consumer purchasing power
demand? (2 of (holding all other factors constant).

2)
•
Prices of related goods: Substitution goods (e.g., tablet
computers vs laptop computers), Complements goods (e.g.,
car and petrol)

Variables Tastes: Advertising & marketing, trends, fashion, seasons

that shift Population and demographics: age, race and gender

market Expected future prices: Consumers choose when to buy

demand goods and services based on their expectations regarding


future prices relative to present prices.

Income: Normal good (e.g. luxury cars and branded


products), Inferior good (e.g. canned tuna, Kmart shoes)
Shifting the demand curve: Figure 3.2
Income
Variables that • Normal good: A good for which the
shift market demand increases as income rises
and decreases as income falls.
demand (1 of • Inferior good: A good for which the
5) demand increases as income falls
and decreases as income rises.
Prices of related goods.

Variables that • Substitutes: Goods or services that


can be used for the same or a
shift market similar purpose.
demand (2 of
• Complements: Goods and services
5) that are used together.
•
Tastes.

Variables that • A broad category that refers to the


many subjective elements that can
shift market influence a consumer’s plans to buy
a good or service.
demand (3 of • Seasons
5) • Trends/fashion
Population and demographics.

• As the population increases, the


demand for most goods and
Variables that services will increase.
shift market • Demographics: Changes in the
characteristics of a population with
demand (4 of respect to age, race, and gender.
5) • Demographics influence the
demand for particular goods and
services.
•
Expected future prices.
• Consumers choose when to buy
goods and services based on their
Variables that expectations regarding future prices
relative to present prices.
shift market
demand (5 of • If consumers expect prices to
5) increase in the future, they have an
incentive to increase purchases
now, and vice versa.
•
Demand side: Summary
Variables affecting
Demand A change in this variable …
Price Represents a movement along the demand curve
Income Shifts the demand curve

Prices of related goods Shifts the demand curve


Ceteris
Tastes Shifts the demand curve
paribus
factors
Population and Shifts the demand curve
Demographics
Expected future prices Shifts the demand curve

Note: A change in price will lead to a change in the quantity demanded for a good or
service.
• A change in demand refers to a shift in the
demand curve.
A change in
• Occurs due to a change in the variables, other
demand versus than the product’s own price, that affect
demand.
a change in
• A change in the quantity demanded refers to a
quantity movement along the demand curve as a result of
demanded a change in the product’s price.

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