Econ Notes: Chapter 4Demand- The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase at specific price. QD is a point on the demandcurve- The demand curve is a set of various quantities demanded (qd) at corresponding prices. It is curve itself- Law of demand: the claim that the quantity demanded of a good falls when the price of the good rises, other things eqal.*buy more people prices go down, buy less man prices go up* inverse between QD and PThe Demand Schedule- Demand Schedule: a table that shows the relationship between the price of the good and the quantity demanded- Ex: Helen’s Demand- Notice that Helen’s preference obey the law of demand. *price of vertical, quanity on Market Demand vs. Individual Demand- The quantity demanded in the marker is the sum of the quantities demand byall buyers at each price- Suppose Helen and Ken are the only two buyers in the Latte marker. (Qd= quantity demandedo *don’t add the pricesDemand Curve Shifters- The demand curve shows how price affects quantity demanded, other things being equal. A change in the price of the good changes QD and results in a movement along the D curve.- These “other things” are non-price determinants of demand (ex. Things that determine buyers’ demand for a good, other than good’s price).- Change in them shift the D curve…*rightward– increase, leftward- decrease 1. # of Buyers - Increase in # of buyers increases quantity demanded at each price, shifts D to the right.2. Income- Demand for a normal good is positively related to income. o Increase in income causes increase in quantity demanded at each price, shifts D curve to the rigo (Demand for an inferior good is negatively related to ince. An increase in income shifts D curves for inferior goods to the left.) (Public transportation, tab water3. Price of Related Goods- Two goods are substitutes if an increase in the price of one causes an increase in demand for the other (move in same directiono Ex. Crest and Colgate. AN increase in the price of Crest toothpaste increases demand for Colgate toothpaste, shifting the Colgate demand curve to the right.o Coke and Pepsi, laptops and desktops, butter and margarine, CDs and music downloads. - Two goods are complement if an increase in the price of one causes a fall in demand for the other. (move in o Ex. Computers and software. If the price of computers rises people buy fewer computers, and therefore less software. Software demand curve shifts left.o College tuition and textbooks, bagels and cream cheese, peanut butter and jelly, hot dogs and hot dogs buns.4. Taste- Absolute advantage- Anything that cause a shift in tastes toward a good will increase demand for that good and shift its D curve to the right.o Ex. The Atkins diet became popular in the 90s, caused an increase in demand for eggs, shifted the egg demand curve to the right.o Also tablet computers, such as the IPad, are currently very popular so the demand curve for these computers has shifted to the right as well. 5. Expectations- Absolute advantage- Expectations affects consumer’s buying decisionso Ex. If people expect their income to rise, their demand for meals at expensive restaurants may increase nowo If the Economy sours and people worry about their future job security, demand for new autos may fall now. Summary: Variable That Influence Buyers****pg 71 will be on testSupply - The quantity of supplied of any good is the amount that sellers are willing and able to sell at a specific price. QS is a point on the supply curve- The supply curve is a set of various quantities supplied (QS) at corresponding prices.- Law of supply: the claim that the quantity supplier of a good rises when the price of the good rises, other things equalo Prices foes up sqs goes up, prices goes down, o Producer wants to make more if price is high, incentive.Supply Schedule - Supply Schedule: a table that shows the relationship between the price of a good and the quantity supplied.o EX. Starbucks supply latteso Notice that Starbucks’ supply schedule obeys the Law of SupplyMarker Supply vs. Individual Supply- The quantity supplied in the marker is the sum of the quanities supplied by all sellers at each price. - Suppose Starbucks and Crimson Café are the only two sellers in this market (Qs= quantity supplied)Supply Curve Shifters- The Supply Curve shows how price affects quantity supplied, other things equal. A change in the price of the good changed QS and results in a movement along the S curve.- These “other things” are non-price determinants of supply.- Changes in them shift the S curve…1. Input Prices- Ex. Of input prices: wages, price of raw materials- A fall in input prices makes production more profitable at each output price, so firms supply a larger quantity at each price, and the S curve shifter to the right. 2. Technology- Technology determines how much inputs are required to produce a unit of output.- A cost-saving technological improvement has the same effect as a fall in input prices, shifts S curve to the right. (*always shifts right)3. # of sellers- An increase in the number of sellers increases the quantity supplied at each price, shifts S curve to the right. 4. Expectations- Ex. o Events in the Middle East lead to expectations of higher oil priceso In response, owners of Texas oilfields reduce supply now, save some inventory to sell later at the higher price. o S curve shifts to the left. - In general, sellers may adjust supply when their expectation of future prices change. (If the good is not perishable)Summary: Variables that Influence Sellers. *****76Equilibrium: P has reached the level where quantity supplied equals quantity demandedEquilibrium price: the price that equated quantity supplied with quantity demanded. Equilibrium quantity: the quantity supplied and quantity demanded at equilibrium price. Surplus (excess supply): when quantity supplied is greater than quantity demanded. (when prices are too high)o Facing a surplus sellers try to increase sales by cutting p rice.o This causes QD to rise and QS to fall. o Prices continue to fall until market reaches equilibrium (marker clears-no surplus)Shortage (excess demand): when quantity demanded is greater than quantity supplied.Facing a shortage sellers raise the price, cauing QD ro fall and QS ro rise.Prices continues to rise until marker reaches equilibrium Steps to Determine the effects of any event1. Decide whether even shifts S