Docstoc

lab3

Document Sample
lab3 Powered By Docstoc
					Demand Side of the
    Market
      Sherry Chi
     Sep 1, 2010
        The Law of Demand
   What do economists mean when
    they use the Latin expression
    ceteris paribus?

   --Holding everything else
    constant
         The Law of Demand
   Law of Demand: holding everything
    else constant, when the price of a
    product falls, the quantity demanded
    of the product will increase, and
    when the price of a product rises, the
    quantity demanded of the product
    will decrease.
   The law of demand tells us that all
    the demand curves are downward
    sloping curve.
        Shift of Demand Curve
   What are the main variables that will
    cause the demand curve to shift?
    Give an example of each. (Review
    question 1.4)
     Shift of Demand Curve
1) Income:
  Normal Good-consume more when
   income increases and consume less
   when income decreases ( Ex:
   iphone, ballet ticket)
     Shift of Demand Curve
1) Income:
 Inferior good-consume more when
  income decreases and consume less
  when income increases (Ex: canned
  food, bus)
     Shift of Demand Curve
2) Price of related goods:
 (a) Substitutes-goods used for the
  same purpose (Ex: Coke and Pepsi)
       Shift of Demand Curve
   2) Price of related goods :
    (b) Complements -goods are used
    together (Ex: coffee and cream)
        Shift of Demand Curve
   3) Taste and Preference:
   Advertising campaigns or trend can
    influence the taste of consumers, so
    can shift people’s demand curve.
       Shift of Demand Curve
   4) Population and demographics:
   As demographics changes in an area,
    the number of consumers of a
    particular good in that area may
    change. (Ex: old people and health
    care) When there are more senior
    people in Raleigh, demand curve of
    health care will shift out.
        Shift of Demand Curve
   Expected Price:
   If consumers become convinced that
    price of one good will increase in the
    future, the demand curve for that
    good will shift out since consumers
    buy the good right now to beat the
    expected higher price in the future.
   And vice versa.
                  Exercises
   Problem 1(Page 92-1.7):
   State whether each of the following events
    will result in a movement along the
    demand curve for McDonald’s Big Mac
    hamburgers or whether it will cause the
    curve to shift. If the demand curve shifts,
    indicate whether it will shift to the left or
    to the right and draw a graph to illustrate
    the shift.
              Exercises
   A) The price of Burger King’s
    Whopper hamburger declines.

   Answer: Curve shifts to left,
    because the price of substitute
    goods falls
              Exercises
   B) McDonald’s distributes coupons
    for $1.00 off on a purchase of a Big
    Mac.

   Answer: Move along the demand
    curve
               Exercises
   C) Because of a shortage of
    potatoes, the price of French fries
    increases.

   Answer: Curve shifts to left,
    because the complements’ price
    increases
              Exercises
   D) Kentucky Fried Chicken raises
    the price of a bucket of fried
    chicken.

   Answer: Curve shifts to right
              Exercises
   E) NIH (national institution of
    health) warned that Big Mac
    contains too much fat and is not
    healthy for people.

   Answer: Curve shifts to left
                  Exercises
   F) Government decides to issue tax
    refund of an average $2000 for
    each person.

   Answer:
    • It is inferior, so curve shifts to left
               Exercises
   Problem 2:
   What will happen to the current
    demand for US cars when following
    conditions occur?
                Exercises
   A) If the price of foreign cars
    increases.
               Exercises
   B) If government lowers the tax rate
    for US brand car sales, foreign cars
    not included.
               Exercises
   C) If government decides to issue
    tax refund of an average $2000 for
    each person.
                 Exercises
   Problem 3:
      A rightward shift in the demand curve
    of Dell laptops could be due to which of
    the following:
     A. HP laptop price decreases
     B. Dell issue coupons for laptops
     C. Dell reduces the prices for laptop
    mice and printers
     D. None of the above
   Answer: C

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:17
posted:4/18/2011
language:English
pages:24