TAILIEUCHUNG - Lecture Economics (19/e) - Chapter 3: Demand, supply, and market equilibrium

The model of supply and demand is the economics profession’s greatest contribution to human understanding because it explains the operation of the markets on which we depend for nearly everything that we eat, drink, or consume. The model is so powerful and so widely used that to many people it is economics. This chapter explains how the model works and how it can explain both the quantities that are bought and sold in markets as well as the prices at which they trade. | Demand, Supply, and Market Equilibrium 03 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Markets Interaction between buyers and sellers Markets may be Local National International Price is discovered in the interactions of buyers and sellers LO1 3- Demand Schedule or curve Amount consumers are willing and able to purchase at a given price Other things equal Individual demand Market demand LO1 3- Law of Demand Other things equal, as price falls the quantity demanded rises, and as price rises the quantity demanded falls Reasons Common sense Law of diminishing marginal utility Income effect and substitution effects LO1 3- 6 5 4 3 2 1 0 10 20 30 40 50 60 70 80 Quantity Demanded (bushels per week) Price (per bushel) P Qd $5 4 3 2 1 10 20 35 55 80 P Q D The Demand Curve LO1 The Demand Curve 3- Changes in Demand LO1 6 5 4 3 2 1 0 Quantity Demanded (bushels per week) Price (per bushel) P Q D1 2 4 6 8 10 12 14 16 18 D2 D3 Change in Demand Change in Quantity Demanded 3- Determinants of Demand LO1 Determinants of Demand: Factors That Shift the Demand Curve Determinant Examples Change in buyers’ tastes Physical fitness rises in popularity, increasing the demand for jogging shoes and bicycles; cell phone popularity rises, reducing the demand for land-line phones. Change in the number of buyers A decline in the birthrate reduces the demand for children’s toys. Change in income A rise in incomes increases the demand for normal goods such as restaurant meals, sports tickets, and necklaces while reducing the demand for inferior goods such as cabbage, turnips, and inexpensive wine. Change in the prices of related goods A reduction in airfares reduces the demand for bus transportation (substitute goods); a decline in the price of DVD players increases the demand for DVD movies (complementary goods). Change in consumer expectations Inclement weather in South America creates an expectation of higher

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