Econ 09 12 14 Chapter 3 demand and supply 1 The law of demand 2 Non price factors shifts of the demand curve 3 Applications Law of demand price or p and the quantity demand or QD are inversely related If one is down then the other one is up A change in nonprice factors leads to change in demand shift Ex of nonprice factors 1 Consumer income assume a normal good If income rises at any price more demand right shift Normal good more income will result in more demand Inferior good more income will result in less demand 2 Prices of related goods related either as complements or substitutes Complements if the gas price lowers results in increase demand for large SUVs Shifts to the right Substitutes if the price of AT T rises results in increase demand for Verizon VERY LOGICAL Supply demand they become nice advertise Demand demand whatever Law of supply P price and the quantity supplied or QS are directly related A change in P change in QS movement A change in nonprice factors change in supply shift 3 Improved technology leads to supply right shift 4 Rising cost of inputs leads to decrease in supply left shift 5 Taxes lowers supply subsidies grant supply Prestige good Not everyone could buy them question of affordability Equilibrium QS QD NO SHORTAGE NO SURPLUS See paper intersection of the demand curve and the supply curve
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