Microeconomics – Unit 2 part 2

PriceP

Quantity DemandedQd

$9 28 37 56 9

Let’s assume Lindsey would see the quantity demanded at the following prices:

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PriceP

Quantity DemandedQd

$9 28 3

7 56 9

P

Q

9

2

8

3

7

5

6

9

D

Qd just a point on thecurve.

is the entirecurve.

To be on thedemand curvea person mustbe WILLINGand ABLE topurchase theproduct or service.

We can graph that demand schedule....

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Q

9

2

8

3

7

5

6

9

D

Qd--it is the amount that will be purchased at a specific P.

Definitions:

D--it is a schedule of quantities of goods and services that will be purchased at various prices at a specified time, all other things held constant.

P

Q

9

2

8

3

7

5

6

9

D

Qd just a point on thecurve.

is the entirecurve.

Price changes Quantity Demanded

Price DOES NOT CHANGEDEMAND! 8 of 29

Law of Demand

Quantity demanded rises as price falls, & quantity demanded falls as price rises, other things constant.

2 exceptions:

(1) Giffen goodsquantity demanded increases

when price increases – in the case of inferior goods; product would have to be one that formed a large part of the total expenditure.

IB extension

con’t …

(1) Giffen goods

19th century economist Giffen claimed that in England the rise in English bread prices reduced real income so much (because that’s what people were spending most of their money on) that consumers bought more bread – bread being an inferior good.

IB extension(con’t)

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(2) Veblen goodsEarly 1900’s economist Thornstein Veblen argued that for some ostentatious goods (yachts, Rolls Royce, Tiffany heart necklaces) as price rises on the good, quantity demanded rises. He argued that humans consumed to strut around & show that they could “afford it.”

IB extension

What happens if P changes from $7 to $8?

Q

$9

2

8

3

7

5

6

9

D

The ___________ ___________ changes, not ____________.

Pat $7 people would demand _____ rather than _____

Quantity Demandeddemand

58

at $9 people would demand _____ rather than _____2

4D1

this is a shift in demand

But you can shift demand....meaning that

What can shift demand?

Let’s say that with all the new homes, there are 100 additional students (consumers) at CHS. What will happen to demand for Lindsey’s lanyards at the same prices?

P

Q

S

D

P

Q

D1

P1

Q1

AFTER shifting demand, then tell us, what happens to P & Q?

P & Q

hold off on note-taking

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P

Q

S

D

P

Q

D1

P1

Q1

This is why supply & demand are important. The curves themselves don’t matter – it’s where they ____________.

So from this graph when D shifted P ____ & Q ____

Their intersection is called ______________ and it tells us the market-clearing __________ & __________ at which all products will be bought & sold.

intersect

equilibrium

price quantity

What can shift demand?

Harkins opens 2 new theaters in Chandler and employs even more CHS students at a higher wage of $7.25/hour. What happens to demand?

P

Q

S

D

P

Q

D1

P1

Q1

What happens to P & Q?

P & Q

What can shift demand?

Lindsey has been selling for $4.00 and decides to raise the price to $6.00. What happens to demand?

P

Q

S

D

P

Q

P1

Demand does NOT shift. P does not shift demand. P is movement along the demand curve. Q1

P

Q

S

D

P

Q

D1

P1

Q1

What can shift demand?

Lindsey wouldn’t let the 3 most popular cheerleaders copy her math homework. Now they refuse to wear the lanyards and make fun of people wearing them. What happens to demand?

What happens to P & Q?

P & Q

P

Q

S

D

P

Q

D1

P1

Q1

What can shift demand? Lindsey has been selling lots of lanyards that the market-clearing price of $4.00. Then the CHS administration decided to permit students to wear their ID’s on clips as well as lanyards. Business-minded Ben started selling metal clips at $1.00 each during lunch. What happens to the demand for Lindsey’s lanyards?What happens to P & Q?

P & Q 19 of 29

What can shift demand? Lots of students like to also buy plastic pockets for $1.50 from the book store to hold their ID’s to wear along with Lindsey’s lanyards. Suddenly Lindsey saw the price of her lanyards drop from $4 to $2. What happens to the demand for plastic pockets?

P

Q

S

D

P

Q

D1

P1

Q1

What happens to P & Q of plastic pockets?

P & Q

Plastic Pockets

What can shift demand? The CHS administration feels guilty for making students wear their ID’s and the high cost involved. So the Administration decides to subsidize the cost of lanyards and gives students $1.00 to help them pay for each lanyard. What happens to demand?

P

Q

S

D

P

Q

D1

P1

Q1What happens to P & Q?

P & Q

P

Q

S

D

P

Q

D1

P1

Q1

What can shift demand?

A lot of gossipy students got wind of Lindsey’s plans to drop her price in half starting next week since it’s near the end of the school year. What happens to the demand for Lindsey’s lanyards this week?

What happens to P & Q?

P & Q

Variables that Shift Demand:

Number of consumers

Income (Y)Normal Goods

Preferences / Tastes

Related products price of Complements

Expectedfuture P by consumers

Subsidies / Taxes

N

I

E

P

R

S

Inferior Goods

future Y by consumers

price of Substitutes

resume note-taking

Income--Normal Goods

Income--Inferior Goods

As consumers’ income (Y) goes up demand fornormal goods increases. As consumers’ Ygoes down, demand for normal goods decreases.

As consumers’ income goes up demand forinferior goods decreases. As consumers’ Ygoes down, demand for inferior goods increases.

IncomeNormal GoodsIInferior Goods

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Make sure you can correctly draw the graphs illustrating a shift in demand.

P

Q

S

D

P

Q

D1

P1

Q1

lanyardsP

Q

S

D

P

Q

D1

P1

Q1

lanyards

Note the elements of an acceptable IB / AP graph:

P

Q

S

D

P

Q

D1

High-Definition TV’stitle of graph

dotted line to show where point is on y & x axis

x axis labeled

y axis labeled

P1

Q1

Note the elements of an acceptable IB / AP graph:

P

Q

S

D

P

Q

D1

High-Definition TV’s

equilibrium P & Q labeled

shifts in curves noted with arrows & new color ink

P1

Q1

Note the elements of an acceptable IB / AP graph:

P

Q

S

D

P

Q

D1

P1

Q1

High-Definition TV’s

changes in P & Q noted with arrows & new color ink

new numbers for P & Q labeled P1 & Q1

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In English pubs, ale is ordered by pints and quarts. So in old England, when customers got unruly, the bartender would yell at them to mind their own pints and quarts and settle down. It's where we get the phrase . . .

“Mind your P's and Q's."