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Topics: Supply and demand, Consumer theory, Economic equilibrium Pages: 14 (2081 words) Published: June 28, 2013
Demand and Supply
Nattapan Kongbuamai Economics Major, School of Management Mae Fah Luang University

1202114 Introduction to Economics

Objectives

   

To understand the demand To understand the supply To understand the equilibrium point To understand the market

1202114 Introduction to Economics

Demand

1202114 Introduction to Economics

What is Demand?

 A consumer's desire, willingness and ability to pay a price for a specific good or service.

 A curve or schedule showing the various quantities of product/services that consumers are willing to purchase at possible price during specified period of time, ceteris paribus (Holding other things constant).

1202114 Introduction to Economics

Demand

 Quantity Demanded: The amount of a good or service that consumer is willing and able to purchase at a given price  Demand Schedule: A table showing the relationship between the price of a product and the quantity of the product demanded  Demand Curve: A curve that shows the relationship between the price of a product and the quantity of the product demanded. It is formed by the line connecting the possible price and quantity purchased responses of an individual consumer.

1202114 Introduction to Economics

Individual Demand Curve
 Function Q = a - bP  Inverse Relationship/ Negative Relationship

1202114 Introduction to Economics

Law of Demand

 Holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when thee price of a product raise, the quantity demanded of the product will decrease.

1202114 Introduction to Economics

Terminology for Changes in Demand Curve
 Change in price  Movement along the curve  Change in nonprice  Shift the demand curve 1.Number of buyers 2. Tastes and preferences 3. Income 3.1 Normal goods 3.2 Inferior goods 4. Expectations of buyers 5. Price of Related goods 5.1 Substitute goods 5.2 Complementary goods

1202114 Introduction to Economics

The Impact of Change in Nonprice Determinants of Demand on the Demand Curve

1.

The Japanese remove import restrictions on American DVDs, and Japanese consumers increase the demand for American DVDs. A decline in the birthrate reduces the demand for baby clothes.

1202114 Introduction to Economics

The Impact of Change in Nonprice Determinants of Demand on the Demand Curve

2.

Tastes and preferences
For no apparent reason, consumers want Beanie Babies and demand increases. After a while, the fad dies and demand declines.

1202114 Introduction to Economics

The Impact of Change in Nonprice Determinants of Demand on the Demand Curve

3.

Income

1202114 Introduction to Economics

Goods

1. Normal goods  Any good for which there is a direct relationship between changes in income and its demand curve. 2. Inferior goods Any goods for which there is an inverse relationship between changes in income and its demand curve. 3. Giffen goods Giffen goods are the consumer product which people paradoxically consume more of as the price rises, violating the law of demand 1202114 Introduction to Economics

Giffen goods

1202114 Introduction to Economics

The Impact of Change in Nonprice Determinants of Demand on the Demand Curve

3.

Income (3.1 Normal goods)
Consumer’s incomes increase, and the demand for steaks increases. A decline in income decreases the demand for air travel

1202114 Introduction to Economics

The Impact of Change in Nonprice Determinants of Demand on the Demand Curve

3.

Income (3.2 Inferior goods)
Consumer’s incomes increase, and the demand for hamburger decreases.

A decline in income increase the demand for bus service.

1202114 Introduction to Economics

The Impact of Change in Nonprice Determinants of Demand on the Demand Curve

4.

Consumers expect the gasoline will be in short supply next month and that...