Objective

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ObjectiveStudents will understand the concept of
DEMAND AND SUPPLY and the law of demand and law
of supply.
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DEMAND

• The quantities of a product which consumers are
  willing and able to purchase at various prices.

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Please note

• If you add the words and able between
  willing and to buy, so that it
  readsWilling and able to buy, now you have
  something called
• Effective Demand.
• (I might be willing to buy a certain car, butam
  I able?)

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LAW OF DEMAND

• As the price of the product (P) goes down, the
  quantity (Q) of the product which consumers are
  willing to purchase goes up, and vice versa.

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Or..as a memory aid

• http//www.youtube.com/watch?vI_izvAbhExYobav2e
  
• OR..in symbols.. P Q v, P v Q
• This shows an inverse relationship of P to Q.

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Price Effect

• If the price changes, the law of demand says that
  the quantity will change.
• It is NOT a change in demand to have the
  quantity change when the price changes, it is
  merely a movement along the curve.

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• Why does the demand curve slope down and to the
  right? In other wordswhy do people tend to buy
  more of a product at a lower price?

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3 possible reasons for price effect

• 1. New Buyer Effect A lower price lures new
  buyers into the market.
• 2. Real Income Effect At a lower price, it is
  as though the consumer has more money to spend.
  
  
  
  
• 3. Substitution Effect At a lower price,
  people will substitute the lower priced product
  for the higher priced one.

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SHIFT FACTORSthe sources of demand

• The shift factors are sometimes called
  determinants of demand.
• I use a mnemonic of TIPSCWE, using the first
  letters of

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Taste and Preference

• What people want to buy because of fashion,
  style, or custom.

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Income

• If peoples incomes increase, they will buy more
  of what we call NORMAL GOODS.
• If an increase in income causes a decrease in
  demand, we call that product an INFERIOR GOOD.

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Population

• more people, more demand.
• Fewer people, less demand.

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Substitutes

• prices of a substitute good may affect a goods
  demand.

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Complements

• Goods which go along with another good will
  affect that goods demand.

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Wealth

• A persons accumulated wealth from past income,
  if it changes, can affect ones current demand.

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Expectations

• If a person expects something to go up in price,
  or to go to a shortage situation, they will buy
  now.
• Andthe opposite if they think it is going to go
  down in price, they will wait to purchase.

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Supply.

• is the quantities of the product that producers
  are willing and able to market at various prices

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The Law of Supply

• states that as the price of the product
  increases, the quantities that producers are
  willing to market will also increase. This shows
  a direct relationship between price and quantity.

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Price Effect - supply

• A change in price causes a change in quantity
  supplied, not a change in supply. This is known
  as the Price Effect.

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Supply Schedule and Curve

• A supply schedule is a table showing prices and
  quantities supplied.
• A supply curve is a graph showing the data from
  the supply schedule.
• The supply curve slopes UP and to the Right.

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Shifters

• Cost of production in many ways, the most
  important shifters.
• Technology related to production
• Number of firms
• Taxes
• Expectations
• But

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Supply shifters(Determinants of supply)

• A Mnemomic?
• ProductivityIndirect taxNumber of
  firmsTechnologySubsidiesWeatherCosts of
  production
• OR

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PASIFIC-an alternate Demand Shifter memory aid

• PopulationAdvertisingSubstitutes (price
  of)IncomesFashions and trendsInterest
  ratesComplements (price of)

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Demand Increase- curve shifts to the rightAT
ALL PRICES"
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Demand Decrease

• Note at all prices

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Supply Increaseagain..curve moves right
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Supply decreasecurve moves left
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Both S and D shift