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Econ 201 Lecture 2.2

Explore consumer demand theory, factors that shift demand curves, and market dynamics. Learn about the laws of demand and supply in economics. Illustrate demand changes in the context of a national park fee increase and its impact on related businesses. Access useful websites for a deeper understanding.

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Econ 201 Lecture 2.2

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  1. Econ 201Lecture 2.2 Consumer Demand Theory Ceteris Paribus (cont’d) 1-13-2009

  2. Overview • Individual and Market Demand Curves • Factors that Shift Demand Curves • More useful websites

  3. From the Demand Side • First Law of Demand • What Does Law Of Demand Mean? • all other factors being equal, as the price of a good or service increases, consumer demand for the good will decrease and vice versa.  • http://www.investopedia.com/terms/l/lawofdemand.asp

  4. Changes in Demand (cont’d)

  5. Factors That Can Shift Demand • Individual and Market Demand Curves • Income • Price of Substitutes • Price of Compliments • Product Quality • Future Prices • Taste and Preferences • Market Demand Curves • Population (market)

  6. Table 4.1Factors That Shift the Demand Curve

  7. Market Demand: Maybe a little bit different • Market Demand may be kinked as new buyers enter at different price points When it’s only Tom – Tom’s D is the market Harry joins the Market Dick joins

  8. What We’ve Learned • Sell rule for firms (Qs: P=MC) • Firms will supply y units up to the point where the MC of producing the next/last unit (yth) is just equal to the price it receives for the good • First law of supply: supply curves will be upward sloping • Buy rule for consumers (Qd: P=MV) • Consumers will buy x units up to the point that price equals MV for the last (xth) unit • First law of demand: demand curves are downward sloping • Negative slope  diminishing marginal value of consuming next unit

  9. A Short Quiz Seattle Times Oct 3, 2007 Olympic National Park officials are suggesting raising the price of an entrance pass for motorists — good for seven days — from $15 to $25 starting in 2009, with the fee for individuals such as cyclists climbing from $5 to $12. Season passes would increase from $30 to $50 But public response, particularly from tourist-dependent local businesses has been generally negative said a spokeswoman for Olympic National Park. • Illustrate the effect of the increase of the price for park passes on the demand for trips to the park 2. Illustrate how the park fee increase would affect the demand for other tourist-related businesses, e.g., hotels, restaurants.

  10. A Take Home Problem

  11. Useful Websites • Basics of demand and supply • http://www.investopedia.com/university/economics/economics3.asp Understanding differences between factors that cause shifts in demand or supply • http://hspm.sph.sc.edu/COURSES/ECON/SD/SD.html • Cobweb theorem • http://www.bized.co.uk/current/mind/2004_5/251004.ppt

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