The Demand Curve: Notes

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The demand curve is flatter (more horizontal) the closer the substitutes for the product and the less diminishing marginal utility is at work for the buyers. •The dependent variable in demand analysis is the quantity (the number of units) sold. The independent variables are price, income of buyers, the price of substitutes, and the price of complements. •An increase in income shifts the demand curve to the right for normal good. It goes to the left for an inferior good. •An increase in the price of a substitute product shifts the demand curve to the right. Consider an increase in the price of bagels; bagel buyers shift along their demand curve to buy less bagels and substitute toward bread, shifting the demand curve for bread to the right at every price. •An increase in the price of a complement shifts the demand curve to the left. When the price of jam rises, jam purchasers substitute along their demand curve, buying less jam and also less bread. This causes the demand curve for bread to shift to the left. •There is a positive relationship between the price and the quantity supplied along the supply curve. •The supply curve is positively sloped because of increasing costs as output increases •The supply curve shifts left (up) when the price of inputs rise or when productivity or technology declines (less output at same price). •The supply curve shifts right (down) when the price of inputs fall or when productivity or technology improves •The shortage is the quantity gap between the demand curve and the supply curve at the shortage price. •A surplus occurs if the price is maintained higher than at E. •Demand is more price elastic in recessions

The price elasticity of demand equals the percentage change in quantity of units sold divided by the percentage change in price. •It measure how quantity or unit purchases by customers respond to changes in price • e = - (% change in Q)/(% change in P)

firm demand equals the overall market...
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