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DEMAND

DEMAND. What Buyers are Willing and Able to Buy, during a given Time Period, ceteris paribus. KEY POINTS ABOUT DEMAND. “WILLINGNESS AND ABILITY” (not stridently wanting) “BUYERS” (not sellers) “during a given time period” is a FLOW (not a STOCK)

Jeffrey
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DEMAND

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  1. DEMAND What Buyers are Willing and Able to Buy, during a given Time Period, ceteris paribus.

  2. KEY POINTS ABOUT DEMAND • “WILLINGNESS AND ABILITY” (not stridently wanting) • “BUYERS” (not sellers) • “during a given time period” is a FLOW (not a STOCK) • “ceteris paribus”- all other things are held constant except price and quantity. • Whole set of P-Q combinations (not QUANTITY DEMANDED)

  3. GENERALIZED DEMAND FUNCTION P f = f( Price: Taxes, Price of Complements Price of Substitutes Tastes for good/service Income, Buyer Expectations, Number of buyers) Q

  4. SUPPLY What Buyers Sellers are Willing and Able to buy Sell, during a given Time Period, ceteris paribus. XXXXX XXX

  5. KEY POINTS ABOUTSUPPLY • “WILLINGNESS AND ABILITY” (not stridently wanting) • “BUYERS” (not sellers) • “during a given time period” is a FLOW (not a STOCK) • “ceteris paribus”- all other things are held constant except price and quantity. • Whole set of P-Q combinations (not QUANTITY DEMANDED) XXXXXXXXXXXXXXXXXXX Sellers (not buyers) XXXXXXXXXXX SUPPLIED

  6. GENERALIZED SUPPLY FUNCTION f = f( Price: Price of Resources Technology, Seller Expectations, Number of Sellers)

  7. HOW TO BE SHERLOCK HOLMES IN READING BETWEEN THE LINES If You Know P and Q then you know whether demand or supply is involved as well as the direction of the shift. If You Know the shift in demand or supply, then you know what is likely to happen to price and quantity If You Know the determinant that has changed and price, then you know what is happening to quantity demanded. If You Know the determinant that has changed and quantity demanded, then you know what is happening to price.

  8. Lower Price Higher Price Lower Output Higher Output Leftward (downward) Shift of Demand Leftward (upward) Shift of Supply Rightward (downward) Shift of Supply Rightward (upward) Shift of Demand Breakdown all shifts into their output and price vectors

  9. MARKET BOUNDARIES • BUYER POINT OF VIEW: No potential seller exists outside of the market boundaries (within a reasonable price range) • SELLER POINT OF VIEW: No potential buyer exists outside of the market boundaries (within a reasonable price range) • BOTH POINTS OF VIEW MUST HOLD • CROSS PRICE ELASTICITY measures

  10. MARKET BOUNDARIES X represents buyers O represents sellers X X O O X X X O

  11. MARKET DEMAND FOR CARS Price ($1000/car) Price ($1000/car) Price ($1000/car) 30 15 7 9 4 5 11 14 U.S quantity (mill/yr) + Foreign Q (mill/yr) = Market Demand

  12. MUSTANG DEMAND GAINS-LOSS=$2974 M. Price of Mustangs TR= $1426 million 9510 TR= $4400 Million GAIN 8000 LOSS DEMAND 150 550 (000’s Mustangs/year)

  13. N represents a new firm MARKET BOUNDARIES U represents your firm X represents buyers O represents sellers X X O O X U X N X O Cross Price Elasticity w.r.t. New Firm?

  14. N represents a new firm MARKET BOUNDARIES U represents your firm X represents buyers O represents sellers X X O N O X U X X O Cross Price Elasticity w.r.t. New Firm? Positive , Negative, or Zero

  15. Percentage Change

  16. Percentage Change

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