# lab3

Document Sample

```					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.

• 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