Download - Deman Micro Economics ECO101
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DEMANDMicro Economics
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ObjectivesEnabling the students to learn about Fundamentals of demand and supply. Define demand with the help of demand
curve. The movement along the demand curve the shifts of the demand curve. Determinants of Demand
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Recap: Answer first!!! Economic problem Scarcity Differentiate micro & macro Positive & normative economics Opportunity cost 3 big questions Factors of production Trade off Model building PPF
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Objectives of the day By the end of this lecture you will be able
to Define demand curve Draw your own & market demand curve Analyze the movement along demand
curve Predict when & why to shift to another
demand curve Elaborate ceteris paribus/determinants
of demand
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Markets A market is a group of buyers and
sellers of a particular good or service.
The terms supply and demand refer to the behavior of people . . . as they interact with one another in markets.
And Economics, especially Microeconomics is about how supply and demand interact in markets.
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Market Types
Goods Market Money Market Labour Market Capital market
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Goods Market: The markets in which goods and services are exchanged.
Money Markets: The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills , commercial paper, bankers' acceptances.
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labor market :The input/factor market in which households supply work for wages to firms that demand labor.capital market: The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.
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Consumer
Consumer is a broad label for any individuals or households that use goods and services generated within the economy.
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Demand Economists record
demand on a demand schedule and plot it on a graph as a demand curve that is usually downward sloping.
The downward slope reflects the relationship between price and quantity demanded: as price decreases, quantity demanded increases.
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Demand Derive Demand Joint Demand
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Utility In economics, utility is a measure of
relative satisfaction. Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behavior in terms of attempts to increase one's utility.
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Firms and Households: The Basic Decision-Making Units
A firm is an organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.
An entrepreneur is a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.
Households are the consuming units in an economy.
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Demand in Markets
• The price of the product in question.
• The income available to the household.
• A household’s decision about the quantity of a particular output to demand depends on:
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Demand in Product/Output Markets
• The household’s amount of accumulated wealth.
• The prices of other products (substitutes and complements) available to the household.
• A household’s decision about the quantity of a particular output to demand depends on:
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Demand in Product/Output Markets
• The household’s tastes and preferences.
• The household’s expectations about future income, wealth, and prices.
• A household’s decision about the quantity of a particular output to demand depends on:
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Demand in Product/Output Markets
Quantity demanded is the amount (number of units) of a product that a household would buy in a given time period if it could buy all it wanted at the current market price.
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Price and Quantity Demand: The Law of Demand
A demand schedule is a table showing how much of a given product a household would be willing to buy at different prices.
Demand curves are usually derived from demand schedules.
PRICE (PER CALL)
QUANTITY DEMANDED (CALLS PER
MONTH)$ 0 30
0.50 253.50 77.00 3
10.00 115.00 0
ANNA'S DEMAND SCHEDULE FOR
TELEPHONE CALLS
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Price and Quantity Demanded: The Law of Demand
The demand curve is a graph illustrating how much of a given product a household would be willing to buy at different prices.
PRICE (PER
CALL)
QUANTITY DEMANDED (CALLS PER
MONTH)$ 0 30
0.50 253.50 77.00 3
10.00 115.00 0
ANNA'S DEMAND SCHEDULE FOR
TELEPHONE CALLS
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ActivityThink about any product that you
wanted to purchase these days.Make your table, showing increase
or decrease in prices and then make your demand curve.
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Why does the Demand Curve Slope Downward?
Law of Demand Inverse relationship between price and
quantity. Law of Diminishing Marginal Utility.
Utility is the extra satisfaction that one receives from consuming a product.
Marginal means extra. Diminishing means decreasing.
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Price and Quantity Demanded: The Law of Demand
The law of demand states that there is a negative, or inverse, relationship between price and the quantity of a good demanded and its price.• This means that demand curves slope downward.
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From Household Demand to Market Demand
Assuming there are only two households in the market, market demand is derived as follows:
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Activity
Take any product and make 3 demand curves of separate households ,now make one market demand curve for
them.
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Determinants of Demand Market price Consumer income Tastes Expectations Number of buyers and sellers Substitutes Complements
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Other Determinants of Household Demand
Normal Goods are goods for which demand goes up when income is higher and for which demand goes down when income is lower.
Inferior Goods are goods for which demand falls when income rises.
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Other Determinants of Household Demand
Substitutes are goods that can serve as replacements for one another; when the price of one increases, demand for the other goes up.
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Other Determinants of Household Demand
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.
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Shift of Demand Versus Movement Along a Demand Curve
• Changes in determinants of demand, other than price, cause a change in demand, or a shift of the entire demand curve, from DA to DB.
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A Change in Demand Versus a Change in Quantity Demanded
To summarize:Change in price of a good or service leads to
Change in quantity demanded(Movement along the curve).
Change in income, preferences, orprices of other goods or services
leads to
Change in demand(Shift of curve).
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The Impact of a Change in Income
• Higher income decreases the demand for an inferior good
• Higher income increases the demand for a normal good
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The Impact of a Change in the Price of Related Goods
• Price of hamburger rises
• Demand for complement good (ketchup) shifts left
• Demand for substitute good (chicken) shifts right• Quantity of hamburger
demanded per month falls
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Change in Quantity Demanded versus Change in Demand
Change in Demand A shift in the demand curve, either
to the left or right. Caused by a change in a determinant other than the price.
Extension in demand Contraction in demand
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Changes in Quantity Demanded
0
D1
Price of Cigarettes per Pack
Number of Cigarettes Smoked per Day
A tax that raises the price of cigarettes
results in a movement along the
demand curve.
A
C
20
2.00
$4.00
12
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Consumer IncomeNormal Good
$3.002.502.001.501.000.50
21 3 4 5 6 7 8 9 10 1211
Price of Ice-Cream Cone
Quantity of Ice-Cream Cones
0
Increasein demand
An increase
in income...
D1D2
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Consumer IncomeInferior Good
$3.002.502.001.501.000.50
21 3 4 5 6 7 8 9 10 1211
Price of Ice-Cream Cone
Quantity of Ice-Cream Cones
0
Decreasein demand
An increase
in income...
D1D2
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What effect each of the following will have on the demand curve for the product B? If
product B becomes more fashionable The price of substitute product falls A decline in income if B is an inferior
good Consumers anticipate the price of B
will be lower in the near future The price of complementary good D
falls Foreign tariff barriers on B are
eliminated
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Answer please!!! Explain law of demand. Why does demand curve slope downward? What are the determinants of demand? What happens to the demand curve when
any of these determinants change? Explain by making curves.
Distinguish between change in demand and change in quantity demand explain through diagrams.
Show extension & contraction of demand on curve.