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2.50
1. A decrease
2.00
in price ...
1.50
1.00
0.50
0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity
of cones demanded.
Market Demand versus Individual
Demand
Market demand refers to the sum of all
individual demands for a particular good or
service.
Graphically, individual demand curves are
summed horizontally to obtain the market
demand curve.
The Market Demand Curve
When the price is $2.00, When the price is $2.00, The market demand at $2.00
Catherine will demand 4 ice- Nicholas will demand 3 ice- will be 7 ice-cream cones.
cream cones. cream cones.
7 13
4 8 3 5
When the price is $1.00, When the price is $1.00, The market demand at
Catherine will demand 8 ice-Nicholas will demand 5 ice- $1.00, will be 13 ice-cream
cream cones. cream cones. cones.
Movement along the Demand Curve
Change in Quantity Demanded
Movement along the demand curve.
Caused by a change in the price of the
product.
Changes in Quantity Demanded
A tax on sellers of ice-
Price of Ice-
Cream cream cones raises the
Cones
price of ice-cream cones
B and results in a
$2.00 movement along the
demand curve.
1.00 A
D
0 4 8 Quantity of Ice-Cream Cones
Change in Demand
A shift in the demand curve, either to the left or
right.
Caused by any change that alters the quantity
demanded at every price.
Shifts in the Demand Curve
Price of
Ice-Cream
Cone
Increase
in demand
Decrease
in demand
Demand
curve, D 2
Demand
curve, D 1
Demand curve, D 3
0 Quantity of
Ice-Cream Cones
Factors affecting shift in Demand Curve
Consumer Income
As income increases the demand for a normal
good will increase.
As income increases the demand for an
inferior good will decrease.
Consumer Income Normal Good
Price of Ice-
Cream Cone
$3.00 An increase in
2.50 income...
Increase
2.00 in demand
1.50
1.00
0.50
D2
D1 Quantity of
Ice-Cream
0 1 2 3 4 5 6 7 8 9 10 11 12 Cones
Consumer Income Inferior Good
Price of Ice-Cream
Cone
$3.00
2.50 An increase in
income...
2.00
Decrease
1.50 in demand
1.00
0.50
D2 D1 Quantity of
Ice-Cream
0 1 2 3 4 5 6 7 8 9 10 11 12 Cones
Prices of Related Goods
When a fall in the price of one good reduces the
demand for another good, the two goods are called
substitutes.
When a fall in the price of one good increases the
demand for another good, the two goods are called
complements.
This equation states that the number of new domestic automobiles demanded during a given year (in
millions), Q, is a linear function of the average price of new domestic cars (in $), P; the average price
for new import cars (in $), PI; disposable income per household (in $), I; population (in millions), Pop;
average interest rate on car loans (in percent), i; and industry advertising expenditures (in $ millions),
A. The terms a1, a2, . . ., a6 are called the parameters of the demand function.
Q = 500P + 210PI + 200I + 20,000Pop 1,000,000i + 600A
Law of Demand
Income Effect
Substitution Effect
Diminishing Marginal Utility
Exceptions of Law of Demand
Future Prices
Prestigious goods
Giffen Goods