DEMAND

1
DEMAND

• What Buyers are Willing and Able to Buy, during a
  given Time Period, ceteris paribus.

2
KEY POINTS ABOUT DEMAND

• WILLINGNESS AND ABILITY (not stridently
  wanting)
• BUYERS (not sellers)
• during a given time period is a FLOW (not a
  STOCK)
• ceteris paribus- all other things are held
  constant except price and quantity.
• Whole set of P-Q combinations (not QUANTITY
  DEMANDED)

3
GENERALIZED DEMAND FUNCTION
P
f f( Price Taxes, Price of
Complements Price of Substitutes Tastes for
good/service Income, Buyer Expectations, Number
of buyers)
Q
4
SUPPLY

• What Buyers Sellers are Willing and Able to buy
  Sell, during a given Time Period, ceteris paribus.

XXXXX
XXX
5
KEY POINTS ABOUT SUPPLY

• WILLINGNESS AND ABILITY (not stridently
  wanting)
• BUYERS (not sellers)
• during a given time period is a FLOW (not a
  STOCK)
• ceteris paribus- all other things are held
  constant except price and quantity.
• Whole set of P-Q combinations (not QUANTITY
  DEMANDED)

XXXXXXXXXXXXXXXXXXX Sellers (not buyers)
XXXXXXXXXXX SUPPLIED
6
GENERALIZED SUPPLY FUNCTION
f f( Price Price of Resources Technolo
gy, Seller Expectations, Number of Sellers)
7
HOW TO BE SHERLOCK HOLMES IN READING BETWEEN THE
LINES If You Know P and Q then you know
whether demand or supply is involved as well as
the direction of the shift. If You Know the
shift in demand or supply, then you know what is
likely to happen to price and quantity If You
Know the determinant that has changed and price,
then you know what is happening to quantity
demanded. If You Know the determinant that has
changed and quantity demanded, then you know
what is happening to price.
8
Lower Price Higher Price

Lower Output Higher Output
Leftward (downward)
Shift of Demand
Leftward (upward) Shift of Supply
Rightward (downward) Shift of Supply
Rightward (upward) Shift of Demand
Breakdown all shifts into their output and price
vectors
9
MARKET BOUNDARIES

• BUYER POINT OF VIEW No potential seller exists
  outside of the market boundaries (within a
  reasonable price range)
• SELLER POINT OF VIEW No potential buyer exists
  outside of the market boundaries (within a
  reasonable price range)
• BOTH POINTS OF VIEW MUST HOLD
• CROSS PRICE ELASTICITY measures

10
MARKET BOUNDARIES
X represents buyers
O represents sellers
X
X
O
O
X
X
X
O
11
MARKET DEMAND FOR CARS
Price (1000/car)
Price (1000/car)
Price (1000/car)
30
15
7 9 4 5
11 14
U.S quantity (mill/yr) Foreign Q (mill/yr)
Market Demand
12
MUSTANG DEMAND
GAINS-LOSS2974 M.
Price of Mustangs
TR 1426 million
9510
TR 4400 Million
GAIN
8000
LOSS
DEMAND
150
550
(000s Mustangs/year)
13
MARKET BOUNDARIES
N represents a new firm
U represents your firm
X represents buyers
O represents sellers
X
X
O
O
X
U
X
N
X
O
Cross Price Elasticity w.r.t. New Firm?
14
MARKET BOUNDARIES
N represents a new firm
U represents your firm
X represents buyers
O represents sellers
X
X
O
N
O
X
U
X
X
O
Cross Price Elasticity w.r.t. New Firm?
Positive , Negative, or Zero
15
Percentage Change
16
Percentage Change