Definitions
Zeynep’s Demand Schedule and
Demand Curve
Price of
Ice-Cream Cone
• DEMAND is a relationship between two
variables: Price and quantity demanded.
• Demand can not be expressed as a single
number
3.00
2.50
1. A decrease
in price ...
2.00
1.50
1.00
• QUANTITY DEMANDED is the amount of a
good that the buyer is willing and able to
purchase
0.50
0 1 2 3 4 5
6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity
of cones demanded.
Copyright © 2004 South-Western
Law of Demand
The law of demand is the claim that, other
things equal,
• if the price of the good rises
the quantity demanded falls
• if the price of the good falls
the quantity demanded rises.
• Changes in Quantity Demanded
vs
• Changes in Demand
Changes in Demand
Changes in Quantity Demanded
Price of IceCream
Cones
A tax that raises the price of ice-cream
cones results in a movement along the
demand curve.
Price of
Ice-Cream
Cones
Increase
in demand
B
2.00
Decrease
in demand
A
1.00
Demand
curve, D 2
Demand
curve, D 1
D
0
4
8
Quantity of Ice-Cream Cones
Demand curve, D 3
0
Quantity of
Ice-Cream Cones
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Variables That Influence Buyers
For each event, state if the change causes a shift in
demand, if so in which direction, or a movement
along the demand curve, if so in which direction,
for taxi journeys. Briefly explain.
1. A rise in the price of bus journeys
2. An increase in average real incomes by 8 per
cent
3. The introduction of zero tolerance of alcohol
in drinking and driving
4. An increase in the meter rate for taxi
journeys
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Shifts in the Demand Curve :
Consumer Income
–As income increases the demand for a
normal good will increase.
–This is also the definition of a normal
good: A good for which demand
increases (falls) as income increases
(declines) is a normal good.
Consumer Income
Normal Good
Price of IceCream Cones
An increase in
income...
3.00
2.50
Increase
in demand
2.00
1.50
1.00
0.50
D1
0 1
Shifts in the Demand Curve :
Consumer Income
–As income increases the demand for an
inferior good will decrease.
–This is also the definition of an inferior
good: A good for which demand
decreases as income increases is an
inferior good.
2 3 4 5 6 7 8 9 10 11 12
D2
Quantity of
Ice-Cream
Cones
Consumer Income
Inferior Good
Price of Ice-Cream
Cones
3.00
An increase in
income...
2.50
2.00
Decrease
in demand
1.50
1.00
0.50
D2
0 1
D1
2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream
Cones
Shifts in the Demand Curve:
Prices of Related Goods
• Complement goods
– Cars and gasoline
– Tennis balls and rackets
– Laptop computers and computer software
– Simit peynir
– Köfte ekmek
• Demand will increase when the price of the
complement good falls.
Price of related good
Complement Good
Price of
Ice-Cream
Cone
$3.00
2.50
2.00
Decrease
in demand
1.50
1.00
0.50
D2
0 1
Complements : Peanut butter and jelly
When the price of peanut butter rises, demand for jelly falls,
that means : the demand curve for jelly shifts to the left.
An increase
in price of a
complement
good...
D1
2 3 4 5 Fall62005,7Emanuele
8 9
10 11 12
Gerratana
Quantity of
Ice-Cream
14
Cones
Shifts in the Demand Curve:
Prices of Related Goods
• Substitute goods
– Pepsi and Coca Cola
– Butter and margarine
– Notebook computers and netbook computers
– Beyaz peynir kaşar peyniri
– Keşkül muhallebi
• Demand will increase when the price of the
substitute good rises.
Price of a related good
Substitute goods : Tea and Coffee
Substitute goods
Price of
Ice-Cream
Cone
When the price of coffee rises, demand for tea increases,
that means : the demand curve for tea shifts to the right.
$3.00
2.50
Increase
in demand
2.00
An increase
in price of a
substitute
good...
1.50
1.00
0.50
D1
0 1
2 3 4 5 Fall62005,7Emanuele
8 9
10 11 12
Gerratana
D2
Quantity of
Ice-Cream
17
Cones
Variables That Influence Buyers
What effect will each of the following have
on the demand for small automobiles?
1. Small automobiles become more fashionable.
2. The price of large automobiles rises (the price of small
autos remain the same).
3. Income declines (small cars are an inferior good).
4. Consumers believe that the price of small autos will
greatly decrease in the near future.
5. A big decrease in the price of gasoline.
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SUPPLY
This concludes our discussion of
DEMAND.
Now, we turn to SUPPLY.
• SUPPLY is the relationship between two
variables: Price and quantity supplied.
– Supply can not be expressed as a single number
• Quantity supplied is the amount of a good
that sellers are willing and able to sell.
• The supply schedule is a table that shows the
relationship between the price of the good and the
quantity supplied.
• The supply curve is the graph of the relationship
between the price of a good and the quantity
supplied.
Dondurmacı Veli Usta’s Supply
Schedule
Dondurmacı Veli Usta’s Supply
Schedule and Supply Curve
Copyright©2010 South-Western
The Law of Supply
–The law of supply is the claim that,
other things equal, the quantity
supplied of a good rises when the price
of the good rises.
Changes in Supply
(Shifts in the Supply Curve)
Market Supply vs Individual Supply
• Market supply refers to the sum of all
individual supplies for all sellers of a particular
good or service.
• Graphically, individual supply curves are
summed horizontally to obtain the market
supply curve.
Changes in Quantity supplied vs Changes in
Supply
• Change in Quantity Supplied
•
•
•
•
Input prices
Technology
Expectations
Number of sellers
– Movement along the supply curve.
– Caused by a change in anything that alters the
quantity supplied at each price.
• Change in Supply
– A shift in the supply curve, either to the left or
right.
– Caused by a change in a determinant other than
price.
Shifts in the Supply Curve
Change in Quantity Supplied
Price of IceCream Cones
Price of
Ice-Cream
Cones
S
Supply curve, S 3
C
€3.00
A rise in the price of
ice cream cones
results in a
movement along
the supply curve.
A
€1.00
0
Decrease
in supply
1
Quantity of
Ice-Cream
Cones
5
Supply
curve, S 1
Supply
curve, S 2
Increase
in supply
0
Quantity of
Ice-Cream Cones
Copyright©2011 South-Western
Table 2 Variables That Influence Sellers
Example :
A sharp increase in milk prices
Increase in milk prices reduces
the supply of ice cream
Price of
Ice-Cream
Cone
S2
S1
0
1 2 3 4
7 8 9 10 11 12 13
Fall 2005, Emanuele Gerratana
Quantity of
Ice-Cream 31
Cones
Copyright©2011 South-Western
What effect will each of the following have
on the supply of automobile tires?
1. A technological advance in the methods of
producing tires.
2. A decline in the number of firms in the tire industry.
3. An increase in the price of rubber used in the
production of tires.
4. A decline in the price of large tires used for semitrucks and earth hauling rigs (with no change in the
price of auto tires).
An inferior good is one for which
demand:
a. rises as income rises.
b. falls as income rises.
c. is unrelated to income.
d. is low because of the low quality of the good.
e. is high because the good must be replaced
often.
Which of the following would be least
likely to increase the demand for beer?
a.
b.
c.
d.
e.
A new scientific study concludes that beer
cures colds and skin disorders.
A price war results in beer selling for
$0.05/bottle.
Bars beginning giving away spicy snacks to
their customers.
The price of a substitute, hard liquor,
(example: vodka, gin etc) rises.
There is an increase in the drinking-age
population.
There are 4 identical buyers (consumers)
and 3 identical sellers (firms). Individual
demand and supply schedules are
INDIVIDUAL DEMAND
Price
Quantity
1
2
3
4
5
5
4
3
2
1
INDIVIDUAL SUPPLY
Price
Quantity
1
2
3
4
5
0
2
4
6
8
SUPPLY AND DEMAND TOGETHER
1. Is there a shortage or a surplus when price is 2?
2. Is there a shortage or a surplus when price is 4?
3. At what price do we have equality between
demand and supply?
4. What is wrong with question #3?
5. Formulate and answer the correct version of
question #3.
• Equilibrium refers to a situation
in which the price has reached
the level where quantity supplied
equals quantity demanded.
SUPPLY AND DEMAND TOGETHER
SUPPLY AND DEMAND TOGETHER
• Equilibrium Price
Demand Schedule
Supply Schedule
– The price that balances quantity supplied and
quantity demanded.
– On a graph, it is the price at which the supply and
demand curves intersect.
• Equilibrium Quantity
– The quantity supplied and the quantity demanded
at the equilibrium price.
– On a graph it is the quantity at which the supply
and demand curves intersect.
At €2.00, the quantity demanded is
equal to the quantity supplied!