ECONOMICS 200

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ECONOMICS 200 PRINCIPLES OF MICROECONOMICS

Professor Lucia F. Dunn Department of Economics
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THREE WAYS TO REPRESENT DEMAND

• 1. A SCHEDULE
• 2. A GRAPH
• 3. AN EQUATION OR FUNCTION

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Demand Schedule
Lets consider the demand schedule for beer at
OSU.
Please note that these do not represent actual
combinations of prices and quantities bought, but
only consumer assessments of what they would do
when confronted with different prices per beer.
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Demand Curve
Now, the information in the table of the beer
demand schedule translates directly into a demand
curve.
Demand Curve
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Demand Equation

• Q f (P)
• Q is the dependent variable
• P is the independent variable
• Supply and Demand Curves are plotted backwards.

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Change in Quantity Demanded
If we have a change in the price of the beer,
whose demand we are examining, we will just get a
movement along the single fixed demand.
We call this change a change in quantity
demanded.
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Shift in Demand Curve
Any particular quantity figure that we read off
this curve would be called a quantity demanded of
beer.
The entire curve is referred to simply as demand.
Demand is usually considered a function of its
own price, ceteris paribus. (Latin for
other things equal or other things constant.)
Actually,
If one of the other variables changes, the way we
would represent this on a 2-dimensional graph
would be by shift of the entire demand curve.
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Shift in Demand Curve (1)
Look at the demand curve for beer when there is a
rise in price of wine. We would expect to see the
entire demand curve for beer shift to the right.
This means that at any price, people would now be
demanding more beer
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Shift in Demand Curve (2)
If a depression like we had in 1930s should
suddenly set in, so that there was a 25 drop in
the average income in the country, then we would
expect the demand for beer and a lot of other
things to move to the left as long as they are
normal commodities.
Now, with people poorer, at every price the
demand for commodities should be lower.
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Distinction betweenChange in Quantity Demanded
Change in Quantity

• Change in quantity demanded is a movement along a
  single demand curve -results from a change in
  price.
• Change in demand is a shift of the entire demand
  curve
• - results from a change in a ceteris paribus
  factor.

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Change in Demand
Ceteris Paribus Factors
1. Average Household Income
2. Prices of Related Products (a)
Substitutes (b) Complements
3. Tastes Preferences
4. Distribution of Income
5. Population
6. Expectation about the Future
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Shift in Demand Curve (1)
Factor 1 Change in Average Household Income
e.g. If a depression like we had in 1930s should
suddenly set in, so that there was a 25 drop in
the average income in the country, then we would
expect the demand for beer and a lot of other
things to move to the left as long as they are
normal commodities.
Now, with people poorer, at every price the
demand for commodities should be lower.
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Change in Average Household Income (ctd)
Two Possibilities
Possibility 1 Normal Commodities When income
goes up, demand increases and vice versa.
Possibility 2 Inferior Commodities When income
goes up, demand decreases and vice versa. e.g.
Hamburger Helper
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Shift in Demand Curve (2)
Factor 2 Change in the Price of Related
Commodities

• Substitutes Consumed instead of one another
• Example Wine and Beer
• Price of wine increases gt Demand for beer
  increases

This means that at any price, people would now be
demanding more beer
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Change in the Price of Related Commodities (ctd)
B. Complements Consumed together Example Coffee
and sugar Price of sugar increases gt Demand for
coffee decreases
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Change in Demand
Ceteris Paribus Factors
1. Average Household Income
2. Prices of Related Products (a)
Substitutes (b) Complements
3. Tastes Preferences
4. Distribution of Income
5. Population
6. Expectation about the Future
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THANK YOU! HAVE A NICE DAY.