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Chapter 3

Elements of Demand

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Market

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Market

is a group of buyers and sellers with the potential to trade.

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Competition in Markets

Imperfectly Competitive Market

- A market in which a single buyer or seller has the power to influence the price.

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Competition in Markets

Purely Competitive Market

- A market in which no buyer or seller has the power to influence the price.

- There are so many buyers and sellers that each is too small to affect the price.

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Supply and demand explains how prices are determined in competitive market.

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Supply and demand are like two blades of a scissors: The demand blade tells us how much of something people want to buy, and the supply blade tells us how much sellers want to sell.

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Demand (D)

- refers to the number or amount of goods and services desired by the consumers at various prices in a particular period of time.

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Quantity Demanded (Qd)

- is the total amount of a good or service that all buyers in a market would choose to purchase at a given price.

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The Law of Demand

- States that when the price of a good rises, and everything else remains the same, ceteris paribus, the quantity of the good demanded will fall and vice versa.

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Ceteris Paribus

- literally translated as "with other things the same," or "all other things being equal or held constant.

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Demand Schedule

- A list showing the quantities of a good or service that consumers would choose to purchase at different prices, with all other variables held constant.

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Demand Schedule

Price (per piece)

Quantity Demanded (pieces per month)

35 3,50030 4,00025 5,00020 6,00015 7,500

Demand Schedule for Apple

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Demand Curve

- The graphical depiction of a demand schedule; a line showing the quantity of a good or service demanded at various prices, with all other variables held constant.

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Demand Curve

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Change in Demand (D)

vs

Change in Quantity Demanded (Qd)

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Change in Quantity Demanded

- It is a movement along a demand curve in response to a change in price.

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Demand Curve

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Change in Demand

- it is a shift of the demand curve in response to a change in some variable other than price.

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Demand Curve

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Change in Demand

- When demand increases, the demand curve shifts to the right; when the demand decreases, the demand curve shifts to the left.

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Determinants of Demand

• Income and Wealth• Prices of Related Products• Population• Consumer’s Expectation of Future Price• Tastes and Preferences

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Determinants of Demand

• Weather • Events and Holidays• Regulation and Law

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Determinants of Demand

1.Income and Wealth.

Income versus Wealth

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Determinants of Demand

1. Income and Wealth.

Normal Good versus Inferior Good

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Determinants of Demand

2. Prices of Related Goods.

Compliment versus Substitute

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Determinants of Demand

2. Prices of Related Goods.

- A rise in the price of a complement decreases the demand for a good, shifting the demand curve to the left.

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Determinants of Demand

2. The prices of related goods.

- A rise in the substitute’s price will cause an increase in demand for the good, shifting the demand curve to the right.

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Determinants of Demand

3. Population4. Consumer’s expectation of future price5. Tastes and Preferences

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Determinants of Demand

6. Weather 7. Events and Holidays8. Regulation and Law

“If you can’t explain it simply, you don’t understand it well

enough.”

- Albert Einstein

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End of

Presentation33

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