ECO2011 Basic Microeconomics - Lecture 5
ECO2011 Basic Microeconomics - Lecture 5
ECO2011 Basic Microeconomics - Lecture 5
Fall 2020
Emily Zheng
What Is a Market?
• A market is a group of buyers and sellers of a particular good or
service.
Demand Schedule:
A table that shows the
relationship between
the price of a product
and the quantity of the
product demanded.
Quantity Demanded:
The amount of a
product or service that
consumers are willing
and able to purchase
at a given price.
Demand
Demand Schedule:
A table that shows the
relationship between
the price of a product
and the quantity of the
product demanded.
Demand Curve:
Graphical
representation of
demand schedule.
Price on y-axis.
Quantity demanded on
x-axis.
Demand
Ceteris Paribus:
Latin phrase meaning
“all else equal”. The
requirement that when
we analyzing the
relationship between
two variables---such
as price and quantity
demanded---other
variables must be held
constant.
Demand
Law of Demand:
As price changes,
quantity demanded
changes in opposite
direction, ceteris
paribus.
Implication:
Demand curve slopes
downward
Market Demand versus Individual Demand
• Market demand refers to the sum of all individual demands for a
particular good or service.
• Graphically, individual demand curves are summed horizontally to
obtain the market demand curve.
The Market Demand Curve
When the price is $2.00, When the price is $2.00, The market demand at
Catherine will demand 4 Nicholas will demand 3 $2.00 will be 7 ice-cream
ice-cream cones. ice-cream cones. cones.
7 13
4 8 3 5
When the price is $1.00, When the price is $1.00, The market demand at
Catherine will demand 8 Nicholas will demand 5 $1.00, will be 13 ice-cream
ice-cream cones. ice-cream cones. cones.
Changes in demand
A change in
something other than
price that affects
demand causes the
entire demand curve
to shift.
P1
The quantity
demanded changes at
every possible price.
Q3 Q1 Q2
What would cause a change in demand?
Income of consumers
Increase in income increases demand if product is normal,
decreases demand if product is inferior.
Normal goods:
Goods for which the demand increases as
income rises, and decreases as income falls
Examples: Designer Clothing
Restaurant meals
Vacations Effect of increase in income,
if good is normal
Inferior goods:
Goods for which the demand decreases as
income rises, and increases as income falls
Examples: Second-hand clothing
Fast food
Are tablet computers normal or inferior goods?
Effect of increase in income,
Probably normal if good is inferior
Changes in demand: Price of related goods
Substitutes:
Goods and services that can be used for
the same purpose
Examples: Apple juice and orange juice
Ice cream and frozen yogurt
Sweaters and sweatshirts Effect on demand for Big
Macs, if price of Whopper
increases
Complements:
Goods and services that are consumed together
Examples: Big Mac and McDonald’s fries
Hot dogs and hot dog buns
Left shoes and right shoes Effect on demand for Big
Macs, if price of McDonald’s
fries increases
Changes in demand: Tastes and preferences
Law of Supply:
As price changes, quantity supplied
changes in the same direction, ceteris
paribus.
Implication:
supply curve slopes upward
Market Supply versus 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 supply
A change in something
other than price that
affects supply causes the
entire supply curve to
shift.
The quantity
supplied changes at
every possible price.
Q2 Q1 Q3
What would cause a change in supply?
Price of inputs
Technological change
Examples:
A new, more productive variety of Effect of a positive change in
technology
wheat would increase the supply of
wheat.
Governmental restrictions on land use
for agriculture might decrease the
supply of wheat.
Example:
An Illinois farmer can plant corn or
soybeans. If the price of soybeans rises, he Effect on the supply of corn,
of an increase in the price of
will plant (supply) less corn. soybeans
Non-perishable products
Change in supply vs. change in quantity supplied