6355 Lecture Notes - Lecture 2: Real Income, Marginal Utility, Marginal Cost
Demand, Supply and Equilibrium
• Increase in demand - shift to the right
• Decrease in demand - shift to the left
• Supply curve - upward sloping, positive relationship between price and quantity willing to be
supplied.
• Demand curve - downward sloping
• Increase in supply - shift to the right
• Decrease in supply - shift to the left
• Quantity is the amount of a good or serviced that buyers are willing to and able to buy at any
given price.
• The law of demand state that, other things being equal, the quantity demanded of a good falls
when the price of the good rises.
• Demand curve: curve that shoes the relationship between the price of a product and the
quantity demanded
• Quantity demanded in the market is the amount that everyone is willing to pay for each unit.
• Ceteris paribus - other things being equal, a reminder that all variables other than the ones
being studied are assumed to be constant.
Shift Factor (Determinants of Demand)
1. The price of relate price of related goods
o Substitutes
o Complements (consumed together)
• DVD and DVD player.
2. Income
o Normal goods - as your income increases you buy more of that good.
• Air travel
• Jewellery
o Inferior goods - as your income decreases you buy less of that good.
• Second hand cars
• Junk food
3. Consumer tastes
o Things being fashionable or not.
4. Expectations of buyers
o Expected future prices - if you think something will become more expensive in the
future then there will be an increase now - shift to the right.
5. Population and demographics.
o Gender, age, etc.
o More babies = more nappies
o More elderly people = more aged care
What Explains the Law of Demand
1. The substitution effect
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