Demand: the modelVariables: prices, quantity demandedAssumption: other things equalHypothesis: (the law of demand)- Other things equal, a higher price leads toa smaller quantity demanded and a lowerprice results in a larger quantity demandedForecast / test / accept - the law
Demand: the model ◼ Variables: prices, quantity demanded ◼ Assumption: other things equal ◼ Hypothesis: (the law of demand) − Other things equal, a higher price leads to a smaller quantity demanded and a lower price results in a larger quantity demanded ◼ Forecast / test / accept – the law
Demand: key pointsDemand is a relationship between quantitydemanded and product priceQd = f (P)- quantity demanded is a function of price- quantity demanded is determined by priceThe law of demand:Qd and P are negatively relatedDemand Curve: downward slopingMarket demand: the sum of individualdemand
Demand: key points ◼ Demand is a relationship between quantity demanded and product price ◼ Qd = f (P) − quantity demanded is a function of price − quantity demanded is determined by price ◼ The law of demand: − Qd and P are negatively related ◼ Demand Curve: downward sloping ◼ Market demand: the sum of individual demand
Demand Curve:Change in Qd and The Law of DemandDemandScheduleforTicketsPriceofticketQuantityPriceofticketsofticketdemanded5,000$350$3503006,0003002508.00025020011,00020015015,000150Aspricerises,thequantity10020,000100demandedfalis,Demandcurve,D501105,00010,00015,00020,000QuantityofticketsOther things equal, higher price for a good leadspeople to demand a smaller quantity of the good
Demand Curve: Change in Qd and The Law of Demand ◼ Other things equal, higher price for a good leads people to demand a smaller quantity of the good
Assumption: Other Things Equalthe other things: factors affecting D---price of related goods.complements vs. substitutes--income: normal vs. inferior--preference--expectations (prices, income, ...)--population--others
Assumption: Other Things Equal ◼ the other things: factors affecting D − -price of related goods • complements vs. substitutes − -income: normal vs. inferior − -preference − -expectations (prices, income, .) − -population − -others
Qd vs. DQd: a number, a corresponding point onthe curveChange in Qd: movement along acurve, caused by change in price onlyD: a relationship, a curveChange in D: a shift of the entire curve,caused by change in other things
Qd vs. D ◼ Qd: a number, a corresponding point on the curve ◼ Change in Qd: movement along a curve, caused by change in price only ◼ D: a relationship, a curve ◼ Change in D: a shift of the entire curve, caused by change in other things