Module 5
Feb 2015
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Market – a group of producers and
consumers who exchange a good or service
for payment
Competitive Market – a market where there
are many buyers and sellers of the same good
or service
Supply and Demand Model – a model of how
a competitive market works
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The Demand Curve
The Supply Curve
The set of factors that cause the demand
curve to shift and the set of factors that cause
the supply curve to shift
The market equilibrium, which includes the
equilibrium price and equilibrium quantity
The way the market equilibrium changes
when the supply curve or demand curve shifts
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Demand Schedule – a table showing how
much of a good or service consumers will
want to buy at different prices
◦ So, if you want to buy a candy bar – you might buy
3 if they are 50 cents each. But if they are a dollar
each, you might buy just one.
Quantity
Cost
5
35 cents
4
45 cents
3
50 cents
1
1 dollar
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Quantity Demanded – The actual amount
consumers are willing to buy at specific
prices
When prices rise – the quantity demanded
falls
When prices fall – the quantity demanded
rises
Graphing this information creates a Demand
Curve and nearly always, this curve is
downward sloping
This is the Law of Demand – at a higher price,
all other things being equal, people demand a
smaller quantity
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Always keep in mind, all other things equal
Suppose that it is discovered that candy bars
cause your hair to fall out, what would that
do to price and demand?
Create a demand schedule using the
following information:
50 cents – 1, 30 cents – 2, 25 cents – 3, 10
cents - 5
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Using the data from the ORIGINAL demand
schedule, create a demand curve.
On the same graph, create the demand curve
for the new data.
Which way did the demand curve shift?
Indicate with an arrow between the two
curves
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Change in demand – a shift of the demand
curve, which changes the quantity demanded
at any given price represented by the shift in
position or the original demand curve, D1 to
its new location at D2.
A shift in the demand curve is NOT the
same as movement along the demand curve
which is the result of a change in that
good’s price.
Shifts to the left are decreases, shifts to the
right are increases
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There are believed to be five factors that shift
the demand curve for a good or service:
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Changes
Changes
Changes
Changes
Changes
in
in
in
in
in
the prices of related goods or services
income
tastes
expectations
the number of consumers
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A pair of goods are Substitutes if a rise in the
price of one of the goods leads to an increase
in the demand for the other good.
Two goods are Complements if a rise in the
price of one of the goods leads to a decrease
in the demand for the other good.
When a rise in income increase the demand
for a good, it is a Normal Good.
When a rise in income decreases the demand
for a good, it is an Inferior Good.
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Tastes, everyone has them. Today, leggings
are en vogue, and there is demand for them.
In the ‘50s, women liked poodle skirts, but
the demand for them has decreased.
Changes in expectations – current demand
for a good is often affected by expectations
about its future price. If a consumer knows
that something will go on sale, they will wait
for the price to drop. Conversely, if they know
the price will increase, they will buy now.
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Individual demand curve illustrates the
relationship between quantity demanded and
price for an individual consumer.
Market demand is the horizontal sum of the
individual demand curves of ALL consumers.
See figure 5.5 on page 55
Also, see Table 5.1 on page 56 and integrate
into your brain cells!!!! I will be asking you
about the shifts on an upcoming test.
Answer the ?? At the end of module 5.