(NOTE: Ellipsis is used to indicate many other variables that influence demand)
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2.6
Demand Curves
Figure 2.1
P1 P2 0
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2.15
Non-Price Factors Influencing Supply
State of technology Input prices
Prices of goods related in
production
Future expectations
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2.20
Changes (Increase) in Supply Figure 2.5
S1 S2 P1 0
A change in supply occurs when one or more of the factors held constant in defining a given supply curve change
A B
The demand curve shows the relationship between price of a good and quantity demanded, all else constant
Demand Q1 Q2 Quantity
2.7
More About Demand Curves
P1
DB DA 0 Q1 Q2 Q3 Q4 Quantity DM = DA + DB
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2.11
Hale Waihona Puke Linear Demand Functions and Curves
Mathematical relationships with
no exponents that take a value other than 1
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2.14
Supply
The functional relationship between
the price of a good or service and
the quantity that producers are willing to supply in a given time, all else held constant.
QD = 10 - 50PC + 0.31 + 1.5TC + 0.5E where
QD = quantity demanded of copper PC = price of copper I = consumer income index TC = index showing uses for copper
Q1
Q2
Quantity
2.19
Supply Relationships
Not all supply curves are linear Supply curve does not show actual
price of product but the relationship of alternative prices and quantities A positive relationship is shown as upward line where increase in one variable causes increase in another variable
Q1
Q2
Quantity
2.21
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Change in Quantity Supplied
A price change causes movement from one point to another
• An increase in price of a substitute
The market demand curve, DM,
considers quantities demand at other prices
2.10
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Individual Versus Market Demand Curve Figure 2.3
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2.8
Increase in Demand
Figure 2.2
D2
D1
P1 0
A change in demand occurs when one or more of the factors are held constant in defining a given demand curve change
PA, PB = price of goods A and B, related to good X EXP = producer expectations about future prices NP = number of producers
(NOTE: Ellipsis is used to indicate many other variables that influence supply)
2. Income
The level of income affects demand for normal goods and inferior goods
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2.3
Non-Price Factors Influencing Demand
3.
Prices of related goods
I = income
(continued on next slide)
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2.5
The Demand Function
QXD = f (PX, T, I, PY, PZ, EXC, NC, … where PY and PZ = prices of goods Y and Z, which relate to consumption of good X EXC = consumer expectations about future prices NC = number of consumers
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2.2
Non-Price Factors Influencing Demand
1. Tastes and preferences
Affected by socioeconomic factors such as age, sex, race, marital status, and education level
Simplification of analysis Best representation of individuals’
behavior
Not all demand functions are
linear
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2.12
Demand Function as an Equation (for copper)
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2.18
Price
Supply Curve for a Product
B A Supply
Figure 2.4
P2 P1
Relationship between price of a good and quantity supplied
0
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TX = state of technology PI = prices of the inputs of production
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(continued on next slide)
2.17
The Supply Function
QXS = f (PX, TX, PI, PA, PB, EXP, NP, … where
Substitute goods – when one good can be used in the place of another Complementary goods – two or more goods that consumers use together
4. 5.
Future expectations
Demand shifters: variables held
constant when defining a demand curve but would shift if their values changed Negative (inverse) relationship: where an increase in one variable causes a decrease in another Change in quantity demanded: results when consumers react to change in price of a good
Number of consumers
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2.4
Demand Function