Please enable JavaScript.
Coggle requires JavaScript to display documents.
Chapter 3: Demand and Supply (Factors that bring a change in demand…
Chapter 3: Demand and Supply
Demand
the entire relationship between the price of a good and the quantity demanded of the good
Substitution effect:
-when the price of a good increases, the opportunity cost of that good increases and people will look at and buy substitutes of that product with lower OCs
The law of demand:
-The
higher
the price of a good, the
smaller
the quantity demanded
The
lower
the price of a good, the
greater
the quantity demanded
Price = a - b(Qd)
BE CAREFUL: The whole demand doesn’t change when the price changes, only the
quantity demanded
will change
Income effect:
-when the price of a good increases and all other influences on consumer’s buying power remain the same, people will buy less of that good as they can’t afford as much as they used to
The Quantity Demanded (Qd) of a good or service:
-The amount that consumers plan to buy during a given time period at a particular price
Measured as
amount per unit time
-also refers to a point on a demand curve (I.e the quantity demanded at a particular price)
Demand curve
-shows the relationship between the quantity demanded of a good and its price when all other influences on consumer's buying power remain the same
NO SHIFT IN THE DEMAND CURVE WHEN PRICE CHANGES!
Demand curve/schedule
-lists the quantities demanded at each price on the
x-axis
-price is on the
y-axis
-An
increase
in demand: demand curve
shifts right
and Qd at each price is higher
-A decrease in the price of a good increases the quantity demanded
-If the price of a good remains constant, but some other influences on buying plans changes, there is a change in demand for that good.
Factors that bring a change in demand
Expected future prices
If the expected future price of a good rises and if the good is non perishable, the OC of getting the good is lower today than it will be when the price increases in the future
Therefore people will retime their purchases
Prices of related goods
-the Qd for a product depends on the prices of substitutes and complements for that product (substitution effect)
a
complement
is a good used in conjunction with another good (e,g movies and popcorn)
a
substitute
is a good that can be used in place of another good
A change in Qd vs. A change in demand
Movement along the demand curve shows a change in the quantity demanded
Because a point on the demand curve shows the quantity demanded at a given price
Income
:
when income increases, people are able to buy more of most goods with their money, demand increases and vice versa
Population
:
Demand depends on the size and age structure of the population in a region
Preferences
:
determines the value that people will place on each good or service
Expected future income:
-when future income increases or credit becomes easier to get, demand for the good might increase
now