ECON 202 1st Edition Lecture 3 Outline of Last Lecture II The Production Possibility Frontier Model PPF A Example Model III Non Linear Slopes of the PPF IV Two Ways the Curve Can Shif a Increases in Resources b Increases in Technology Outline of Current Lecture V What Shifs the Demand Curve VI Law of Demand VII What is the demand curve telling us VIII Introducing Supply Current Lecture Coffee Price vs Quantity Graph Downward sloping demand curve Law of Demand as price declines quantity demanded increases For the most part demand curves are downward sloping These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Quantity Demanded a point on the demand curve Demand the entire curve Demand Curve Shifters What can shift the demand curve 1 NOT price a change in price will not shif demand 2 Number of Consumers more consumers are available to consume 3 Prices of Related Goods the price of some similar good will effect the price of another good a Substitutes example coffee and tea b Complements goods that are consumed together example sugar and coffee hot dogs and hot dog buns 4 Changes in Income as you earn more money you purchase more goods a Normal Goods most things b Inferior Good any good that you buy less of when your income increases Example Ramen Noodles i These goods depend on the person and the choices that they make 5 Changes in Tastes trends fads something that causes a person to change their preference towards goods a Example Health Fads 6 Changes in Expectations about the Future Price Example We know that the price of coffee is going to double in the next week so you go out and stock up on it Price and Quantity Demand Shifing Outwards This graph represents the change in an increase in the price of a substitute This graph represents how the demand curve is affected by the increase in a complementary product As an example if the cost of sugar increases the demand for coffee may be negatively affected as there are some consumers who do not want to buy coffee because of the increased cost of purchasing sugar as well Supply Schedule Law of Supply as price increases quantity supplied increases Supply Shifters 1 Changes in Input Prices changes in the raw materials or inputs into the final product example Coffee beans become more expensive the coffee sellers will make and sell less 2 Related Goods Complements in production can shif the supply curve because producers might have to face the decisions of what supplies they have available 3 Change in Technology Produce more with your given resources 4 Changes in Expectations Expecting the future price to increase you also expect to see your supply to change 5 Number of Sellers The more sellers affects the overall supply