23 Şubat 2024 Cuma
Demand
A demand curve is the rst important element of a market for goods and services.
“Suppose the consumer is endowed with q1 units of the good. If I take one unit of
the good away from the consumer, how many extra TL’s should I give to the
consumer, so that she is left indi erent?”
- Marginal Bene t: How much money the consumer is willing to pay for the last unit
of the good at the margin, when she has q units of the good.
- MB(q1) = p1 ==> Under the optimal quantity, the marginal bene t is equal to the
price.
- Most consumers really value the rst unit of a good a lot, whereas they do not
value the 100th unit that much.
- If the price of an ordinary good increases, the consumer buys it less.
- Substitution E ect: How consumption is impacted by price changes.
- Income E ect: The change in consumption due to changes in consumer income.
- Normal Goods: As a consumer's income rises, the demand for normal goods also
increases.
- Inferior goods: A good whose demand drops when people's incomes rise.
As income increases, inferior goods are purchased less as consumers with higher
purchasing power spend more on normal goods.
Demand Schedule
“If the price of good 1 per unit is p, what is the quantity you demand?”
- Demand Schedule: This is a relation
between the possible prices of the good
and the quantities the consumer would
like to consume at these prices.
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“If I want you to demand q1 units of
good 1, what should the maximum
price p of good 1 per unit be?”
Individual Demand Curve
We put the price (p) on the y-axis and the quantity (q1) on the x-axis.
- (From p to q1) It shows, at each price, the quantity demanded by consumer.
- (From q1 to p) It shows, at each quantity, the marginal bene t of consumer for the
q-th unit of the good.
Market Demand Curve
- To obtain the market demand curve, we add up the individual demands of every
consumer in the market. That is, at every single price, we add up the individual
demands of the consumers at the said price. The total we obtain is the quantity
demanded by the consumers in the market. We will denote this quantity by q.
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- Law of Demand: Holding everything else constant, when the price of a good
rises, the quantity demanded falls.
Variable That Shift the Demand Curve
Income of Consumers
If the good is a normal good,
- An increase in income will cause an outward shift in the demand curve.
- A decrease in income will cause an inward shift in the demand curve.
If the good is an inferior good,
- An increase in income will cause an inward shift in the demand curve.
- A decrease in income will cause an outward shift in the demand curve.
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Prices of Other Goods
Consider the demand curve for good X , and consider another good Y which is a
substitute of good X. (Substitute Goods)
- An increase in the price of good Y. will cause an outward shift in the demand
curve for good X.
- A decrease in the price of good Y. will cause an inward shift in the demand curve
for good X.
Consider the demand curve for good X, and consider another good Y. which is a
complement of good X.
- An increase in the price of good Y. will cause an inward shift in the demand curve
for good X.
- A decrease in the price of good Y. will cause an outward shift in the demand
curve for good X.
Changes in Tastes and Preferences
Sometimes people will start preferring a good more due to an exogenous change in
tastes and preferences. This will cause an outward shift in the demand of the said
good.
On the contrary, a lawsuit against a rm may make people move away from the
products produced by that rm, causing an inward shift in the demand
This does not have to be tastes as well: the external conditions may lead to
consumers preferring a good more. Since 2020, there is a pendemic going around.
Early on, the pandemic it caused a tremendous outward shift in the demand curve
for hand sanitizers, face masks, bread machines, and toilet papers. On the other
hand, it caused in inward shift in the demand curve for plane tickets, restaurants,
haircuts, and souvenirs.
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