Chapter 3. Demand.
Chapter 3. Demand. Econ 232
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This 4 page Class Notes was uploaded by Amadeo Notetaker on Tuesday January 12, 2016. The Class Notes belongs to Econ 232 at Western Illinois University taught by Devereueawax J E in Spring 2016. Since its upload, it has received 23 views. For similar materials see Principles of Economics: Microeconomics in Economcs at Western Illinois University.
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Date Created: 01/12/16
Chapter 3. Demand It is going to be assumed that we have a perfectly competitive market: There are many buyers and sellers (One seller/buyer cannot alter the market on its own). All firms are selling identical products (so, for example, hamburgers from McDonalds are identical to the ones of Burger King). There are no barriers to new firms entering the market (as long as they have the necessary money to enter it). Demand: overall relationship between price of a good/service and the quantity a buyer is willing and able to purchase. Demand is based in several factors: 1 Price. 2 Taste/Preferences: product features that make the good or service desirable. 3 Price of substitute (example: Android is the Substitute of Apple). If the prices of the substitutes (Androids) decrease, less people will buy apple products. 4 Income: if income increases you are going to be able to afford more expensive products. 5 Price of Complementary goods (these are products that are bought together, like the phone cases or chargers). If the price of apple chargers and cases increase, demand in iPhones will decrease, for example. 6 Financing/interest rates: people does not want to spend a lot of money at once. 7 Expectations about future prices: People waits to buy a product if they know its price will decrease in a future. 8 Expectations about future income: demand will increase if people is expecting an increase in their future income. 9 Population in the market: the more population, the more people may be willing to buy a product. Quantity Demanded (Q ):DIs the amount a buyer will purchase at a specific price holding all the other factors constant. Law of Demand: If the price of a product decreases, the Q of the product increases. Thus, D there is a negative relationship between prince and QD. Demand Schedule: table that shows the relationship between the price of a product and the quantity of the product demanded. Example with an iPad: Price Q D 1000 $ 0 units 800 $ 1500 units 600 $ 3000 units 400 $ 4500 units Movements and Shifts Movements: increase or decrease in the Quantity Demanded (Q ). ODcurs only when there is a change in the demanded current price of our primary good. Shifts: is an increase or decrease in Demand (D). Occurs only when there is a change in any variables other than Price. Rightward shift: increase in Demand. Leftward Shift: decrease in Demand. Variables that shift Demand: Income: Normal Goods: a good for which the Demand increases as income increases, and vice versa. For example, clothes. Inferior Goods: a good for which the Demand increases as income decreases, and vice versa. For example, McDonalds. Price of Related Goodes: Substitutes: a good that competes with another good for consumer purchase. As the price of the substitute increases, de Demand of the product increases, and vice versa. For example, if the prince of Samsung cellphones increase, the demand on iPhones cellphones will increase. Complements: a good that is jointly consumed with another product. As the price of the complement increases, the demand of the product decreases, and vice versa. For example, if the prince of the iPhone chargers increase, the demand on iPhones will decrease. Taste and Preferences: If the consumer’s taste increases, the demand of the product increases, and vice versa. Population and Demographics: If the population increases, demand increases, and vice versa. Expected future prices: If princes are expected to increase in a recent future, the demand on the product will increase today, and vice versa. Demand v. Quantity Demanded Change in Demand: refers to a SHIFT of the Demand curve. It is caused by a Non Price related factor. Change in Quantity Demanded: refers to a MOVEMENT along the Demand curve. Is caused by a pricerelated factor. For example: If the price increases, the quantity demanded decreases: this would represent an upward movement along the Demand curve. If the consumer’s taste increase, the Demand increase as well: this would represent a rightward shift in the Demand curve.
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