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Chapter 2 - Introducing supply and demand. After reading this chapter, you should be able to answer the following questions: What is demand? What is law of demand? What factors change demand? What is supply? What is law of supply? What factors change supply? | Chapter 2 Introducing Supply and Demand McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. A Tale of a Desert When water is free of charge: Miners consume lots of water. Government is the only supplier of water. When price of water is high: Miners conserve and use less water. Private sellers find new ways to sell more water. 2- Learning Objectives What is demand? What is law of demand? What factors change demand? What is supply? What is law of supply? What factors change supply? 2- Demand Demand = How much consumers buy at various prices 2- Quantity Demanded vs. Demand Quantity demanded = The number of units consumers purchase at a specific price over a specific time period. Demand = The entire relationship between price and quantity demanded over a specific time period. 2- Price Quantity Demanded $.05 30,000 $.10 24,000 $.15 18,000 $.20 12,000 $.25 6,000 Demand for Apples $P .30 .25 .20 .15 .10 .05 .00 0 10 20 30 40 Quantity of | Chapter 2 Introducing Supply and Demand McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. A Tale of a Desert When water is free of charge: Miners consume lots of water. Government is the only supplier of water. When price of water is high: Miners conserve and use less water. Private sellers find new ways to sell more water. 2- Learning Objectives What is demand? What is law of demand? What factors change demand? What is supply? What is law of supply? What factors change supply? 2- Demand Demand = How much consumers buy at various prices 2- Quantity Demanded vs. Demand Quantity demanded = The number of units consumers purchase at a specific price over a specific time period. Demand = The entire relationship between price and quantity demanded over a specific time period. 2- Price Quantity Demanded $.05 30,000 $.10 24,000 $.15 18,000 $.20 12,000 $.25 6,000 Demand for Apples $P .30 .25 .20 .15 .10 .05 .00 0 10 20 30 40 Quantity of Apples in thousand D Demand curve 2- Law of Demand Consumers buy less of a good as its price increases and more of a good as its price decreases. As price increases, quantity demanded falls and as price decreases, quantity demanded rises. 2- $P .30 .25 .20 .15 .10 .05 .00 0 10 20 30 40 Quantity of Apples in thousand D Demand Curve Demand Curve = A graph that shows demand relationship. Negative relationship between price and quantity demanded. Slope of demand curve is negative. Downward sloping demand curve. 2- Market Demand Market demand = the sum total of individual quantities demanded at each price. Price Bill’s demand Jane’s demand Sophia’s demand Market demand $.05 20 10 5 35 $.10 16 8 4 28 $.15 12 4 3 19 $.25 8 1 1 10 $.30 5 0 0 5 2- $P 30 25 20 15 10 5 0 0 10 20 30 40 50 Quantity of caps in thousand Change in Quantity Demanded vs. Change in Demand Ceteris paribus: Change in price causes change in quantity demanded. Movement along the same demand curve. Lose 80%
