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Economics 100

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Economics 100 Lecture 5 Demand and Supply (I) – PowerPoint PPT presentation

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Title: Economics 100


1
Economics 100
Lecture 5 Demand and Supply (I)
2
Demand and Supply
  • Opportunity Cost and Price
  • Demand

3
Opportunity Cost and Price
  • Demand and supply explain how prices and
    quantities bought and sold are determined
  • Price is relative price
  • A relative price is an opportunity cost

4
Demand
  • The quantity demanded is the amount of a good or
    service that consumers plan to buy in a given
    period of time and in given conditions (of
    income, tastes, other goods prices, etc.)

5
What determines buying plans?
  • The price of the good
  • The prices of related goods
  • Expected future prices
  • Income
  • Population
  • Tastes

6
The Law of Demand
  • Other things remaining the same, the higher the
    price of a good, the lower is the quantity
    demanded of that good
  • Reasons
  • substitution effect
  • income effect

7
Demand
  • Demand is the quantity demanded at each price
  • Demand is illustrated by a
  • Demand schedule
  • Demand curve

8
The Demand Schedule
  • Price Quantity demanded
  • (/tape) (mill. tapes/week)
  • a 1 9
  • b 2 6
  • c 3 4
  • d 4 3
  • e 5 2

9
The Demand Curve
  • Figure shows a demand curve

10
Demand Curve
  • Two meanings of the demand curve
  • Quantity bought at a given price
  • Maximum willingness to pay for the last unit
    bought of a given quantity

11
What makes demand change?
  • 1. The prices of other goods
  • Substitutes
  • Complements
  • 2. Income
  • Normal goods
  • Inferior goods
  • 3. Population
  • 4. Preferences (tastes)

12
A Change in Demand
  • Price Quantity demanded
  • (/tape) (mill. tapes/week)
  • (W. 200) (W. 50)
  • a 1 9 13
    a'
  • b 2 6 10
    b'
  • c 3 4 8
    c'
  • d 4 3 7
    d'
  • e 5 2 6
    e'

13
A Change in Demand
  • Figure shows a change in demand
  • When demand changes, the demand curve shifts

14
Change in quantity demanded vs. Change in demand
  • When the price of a good changes, there is a
    change in the quantity demanded, which is shown
    by a movement along the demand curve
  • When any other influence on buying plans changes,
    there is a change in demand, which is shown by a
    shift of the demand curve
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