Economics 1: Principles of microeconomicsMonday, April 9, 2012Lecture 3Review- Way a theory is judged- We have no needso needs are basically wantso DEMANDS: relates the amount consumers are willing and able to purchase at various sacrficiesPreview- Demando Law of Demand no exceptions to the L. of D. change in demand vs. change in quantity (QD)*** alleged exceptions to L. of D.- SupplyLaw of Demand: as the sacrifice necessary to acquire a unit of good increases, the amount of consumers are willing and able to purchase decreases, everything else held constant P Q/WEEK Price DEMAND (D.) CURVE:$2.00 7 $1.00 140 $0.50 560 Pears Q/tExamples:As prices go up, you indirectly compare the marginal benefitsversus the marginal costsEconomics 1: Principles of microeconomicsMonday, April 9, 2012Lecture 3Price of Gas in 1980: $1.00/gallonPrice of day's admission to Disneyland: $25.00/day CHEAPER VERSION!--> 1 day @ Disneyland costs 25 gallons of gasvs.Price of gas in 2012: $4.50/ gallonPrice of day's admission to Disneyland: $100.00/day--> 1 day @ Disneyland costs 22 gallons of gas^^What you are sacrificing in terms of other goods (Law of Demand)Change in Quantity Demanded (Q D )-Caused only by a change in the products own price (P)-Movement along the existing demand curve-Law of Demand Price $1.25 $1.00 Q1.25 Q1.00 Q/t PearsEconomics 1: Principles of microeconomicsMonday, April 9, 2012Lecture 3 P Q/week 2.00 7 25 1.00 140 300 At any given $, there is an increase in demand resulting in a new D. curve 0.50 560 750 Price Shift to the right, and INCREASE in demand Shift to the left, and DECREASE in demand Q/t PearsChange in Demand-caused by anything other than own price that affects the amount consumers are willing and able to purchase-illustrated by a shift in the entire curveBig 5 Shift Factors for individual demand curves1. tastes of preferencesa. something is stylish, curve will shift to the right (green line)b. there is a health risk, curve will shift to the left (blue line)2. price expectationsa. buying now will increase if knowing prices for next week will increase3. price of substancea. price of apples increases, so the demand for pears increases4. price of complement (something you can use along with the product -CD and CD player)a. if CD price decreases, the CD player price increasesEconomics 1: Principles of microeconomicsMonday, April 9, 2012Lecture 35. incomea. normal good: as income goes up, the demand increasesb. inferior good: as income goes up, the demand decreasesi. inferior good: used cars, low quality meats6. market demand: when there are more consumers, there will be an increase in the market demandExample: The first market is only with the first three consumers. When a fourth consumer is added to the bunch, the whole market demand increase (market 2).Price Consumer1Consumer2Consumer3Consumer4Market Market (2)1.00 1 0 0 1 1 20.90 2 1 0 2 3 50.80 3 2 0 3 5 80.70 4 3 1 4 8 120.60 5 4 2 5 11