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PRINCIPLES OF
ECONOMICS
2.0 DEMAND AND SUPPLY
Week 3
No No High High
barriers barriers barriers barriers
to entry to entry to entry to entry
As the price of a good rises, the quantity demanded per period falls.
As the price of a good falls, the quantity demanded per period rises.
Simply put, the law of demand states that the price of a good and the quantity
demanded of the good are inversely related, cateris paribus.
P Qd ; P Qd
The law of demand applies when other things are held constant such as price
of other goods and the income level.
1.00 2 1 1 4
0.80 4 8 2 14
0.60 6 9 3 18
0.80 8 10 4 22
0.20 10 11 5 26
Table 2
Changes In Demand
(A shift of the demand curve)
The demand for chocolate bars
Decreases (shift to the left) if: Increases (shifts to the right) if:
A change in tastes away from the A change in tastes towards the product
product
A competitor has a successful There is a successful advertising
advertising campaign campaign
The price of a substitute falls The price of a substitute rises
The price of a complement rises The price of a complement falls
Income falls (choc is a normal good)* Income rises (choc is a normal good)*
Income rises (item is an inferior good)
Expected future income falls Expected future income rises
The population decreases The population increases
2.0 Demand and Supply 15