© 2010 Pearson Education Canada Organizing Production ECON103 Microeconomics Cheryl Fu.
MICROECONOMICS Unit 3. Market Arrangement that allows buyers and sellers to exchange things ...
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MICROECONOMICS Unit 3
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Transcript of MICROECONOMICS Unit 3. Market Arrangement that allows buyers and sellers to exchange things ...
MICROECONOMICS
Unit 3
Market
Arrangement that allows buyers and sellers to exchange things Production side
Supply Factors of production
Consumption side Demand Determinants of demand
Demand
Amount of a good desired at a given price in a specific time
Graphing
The price is always located on the vertical axis and quantity is always located on the horizontal axis.
Numbers increase as they move away from the origin.
0
0
$
Q
Graphing Demand
Demand Schedule Ice Cream Sundae Price
1 5.00 2 4.50 3 4.00 4 3.50 5 3.00 6 2.50 7 2.00
Graphing Demand
Demand Curve
$
Q
6.005.505.004.504.003.503.002.502.001.501.000.50
1 2 3 4 5 6 7 8
D
Law of Demand
Demand increases as price decreases Demand decreases as price increases Inverse Relationship
Quantity Demanded
Quantity demanded is caused by a change in price All other factors remain the same
Elasticity
How sensitive a product is to a change in price Elastic – very responsive Inelastic – not responsive
Elasticity Graphed
$
Q
ED
ID
Calculating Elasticity
Run over Rise% Quantity% Price
PRACTICE (< > = 1) Price of Gasoline up from $3.50 to $3.60 while
quantity demanded down from 6000 gallons to 5900 gallons.
Price of candy down from $3.00 to $2.50 while quantity demanded up from 30 bags to 40 bags.
Quantity of Senior Sweats down from 305 to 300 sets while price up from $30 to $35.
Income Effect
The change in consumption resulting from a change in real income
Normal Good Reacts normally or follows the law of
demand Inferior Good
Demand decreases as income increases “Great Cracker Taste Test”
Changes in Demand
Changes in the Determinants of Demand cause changes in Demand at every Price Determinants of Demand
Income Attitude Substitute Complement
http://nbr.com/2013/04/05/bright-ideas-getting-to-the-point/
Increase in Demand
$
D
Q
D2
Effects of Determinants
Increase Demand Get a raise Popular advertisement No substitute choices New products to go with the original
Decrease in Demand
$
Q
DD2
Effects of Demand
Decrease Demand Lose your job Fad not popular anymore New competitor in the market Complement not available anymore
Critical Thinking
Income Attitude Substitute Complement
Price
D = curve shifts left or right
Qd = movement is on the curve
Exit Slip
Use the blank half sheet of paper to make up a scenario in which demand will change over time. Name the product Describe the change in the market State which determinant changed Graph the changes on demand
Don’t forget to put you name on the paper Due at the end of the period
