Chapter 3 Supply and demand In introduction (Demand supply and market Equilibrium
(Demand, Supply and Market Equilibrium) Chapter 3 Supply and Demand: In Introduction
Topics Demand a Supply Market Equilibrium Tendency to change Intervention Comparative study
2 Topics ◼ Demand ◼ Supply ◼ Market Equilibrium – Tendency to change – Intervention – Comparative study
Demand a The quantity of a good that buyers wish to buy at each price Demand curve: a schedule or graph showing demand
3 Demand ◼ The quantity of a good that buyers wish to buy at each price ◼ Demand curve: a schedule or graph showing demand
Demand: key points a willingness and ability to buy a relationship between guantity demanded and product price -Qd=f(P) quantity demanded is a function of price quantity demanded is determined by price ■ The law of demand Qd and p are negatively related a Demand Curve: downward sloping Market demand the sum of individual demand
4 Demand: key points ◼ willingness and ability to buy ◼ a relationship between quantity demanded and product price ◼ Qd = f (P) – quantity demanded is a function of price – quantity demanded is determined by price ◼ The law of demand: Qd and P are negatively related ◼ Demand Curve: downward sloping ◼ Market demand: the sum of individual demand
Key terms (why downward sloping Substitution effect (of a price change) (willingness to buy) change in quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes Change in Qd when switch to or from substitutes because of p changes a Income effect (of a price change) (ability to buy change in quantity demanded of a good that results because a change in price changes the buyers purchasing power Change in Qd when purchasing power changes because of p changes
5 Key Terms (why downward sloping?) ◼ Substitution effect (of a price change): (willingness to buy) – change in quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes – Change in Qd when switch to or from substitutes because of P changes ◼ Income effect (of a price change): (ability to buy) – change in quantity demanded of a good that results because a change in price changes the buyer’s purchasing power – Change in Qd when purchasing power changes because of P changes