Transcript Demand, Supply and Price (Part 2) I. Increase in Demand P

Demand, Supply and Price (Part 2)
I.
Increase in Demand
P
D2
D1
S1
P2
P1
0
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Q1
Q2
Q
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Increase in demand means quantities
demanded increase at all prices.
P ($)
6
5
4
3
Original Qd
3
4
5
6
New Qd
6
7
8
9
Quantities demanded increase by 3 units at all prices.
Be careful:
Increase in demand  increase in quantity demanded
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P
D2
D1
S1
P2
P1
0
Q1
Q2
Q
When demand increases, the demand
right from D1 to D2.
curve will shift to the _____
The equilibrium price will increase
_______ from P1
to P 2 and the equilibrium quantity will
increase
_______ from Q1 to Q2.
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P
D4
D3
S1
P3
P4
0
Q4
Q3
Q
When demand decreases, the demand
left from D3 to D4.
curve will shift to the ____
The equilibrium price will ________
decrease from P3
to P4 and the equilibrium quantity will
decrease
________ from Q3 to Q4.
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Cause
and
Effect
D
D
P, Q
P, Q
P
P
Qd
Qd
Shift of the
entire demand
curve.
movement
along the same
demand curve.
It is wrong to say that:
Qd
P, Q
Qd
P, Q
P
D
P
D
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II.
Factors affecting demand
1. Consumers’ income
a. Superior goods (normal goods)
income   demand 
income   demand 
e.g. PSP, Levi’s jeans...
b. Inferior goods
income   demand 
income   demand 
e.g. instant noodles, bread...
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II.
Factors affecting demand (con’t)
2. Prices of related goods
a. Substitutes (competitive demand)
e.g. Coca Cola and Pepsi
vs
P of Coca Cola 
 demand for Pepsi , v.v.
b. Complements (joint demand)
e.g. digital cameras and storage media
P of digital cameras 
 demand for storage media , v.v.
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II.
Factors affecting demand (con’t)
3. Number of buyers
Immigrants   demand for housing 
No. of elders   demand for medical
services 
4. Demand for resources/factors
(derived demand)
Demand for housing 
demand for construction
workers and steel 
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III. Increase in Supply
P
S1
D1
S2
P1
P2
0
Q1
Q2
Q
When supply increases, the supply curve
right from S1 to S2. The
will shift to the _____
equilibrium price will decrease
________ from P1 to
P2 but the equilibrium quantity will
increase from Q1 to Q2.
________
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IV.
Decrease in Supply
P
S4
D1
S3
P4
P3
0
Q4
Q3
Q
When supply decreases, the supply curve
left from S3 to S4. The
will shift to the ____
equilibrium price will ________
increase from P3 to
P4 but the equilibrium quantity will
decrease from Q3 to Q4.
________
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Cause
and
Effect
S
S
P, Q
P, Q
P
P
Qs
Qs
Shift of the
entire supply
curve.
movement
along the same
supply curve.
It is wrong to say that:
Qs
P, Q
Qs
P, Q
P
S
P
S
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V.
Factors affecting supply
1. Cost of production
a. production cost   supply ; v.v.
b. per-unit tax  supply 
c. per-unit subsidy  supply 
Be careful:
S  supply curve will shift down (to the right)
S  supply curve will shift up (to the left)
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V.
Factors affecting supply (con’t)
2. Prices of related goods
a. Competitive supply
e.g. residential flats
and cultural amenities
P of flats   supply of amenities , v.v.
b. Joint supply
e.g. chicken legs and wings
P of chicken legs 
 supply of wings ; v.v.
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V.
Factors affecting supply (con’t)
3. Number of sellers
Number of firm   supply ; v.v.
4. State of technology
Technological progress  supply 
PARKnSHOP
CYBERSTORE
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VI. Change in Demand and Supply
at the same time
P
D2
D1
P
S1
D1
S1
S2
P2
P1
P2
P1
0
Q1
D
Q2
Q
P, Q
0
S
Q1 Q2
Q
P, Q
Por , Q
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a. increase in demand > increase in supply
P
D1
D2 S1 S2
P2
P1
0
Q1
Q2
Q
P, Q
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b. increase in demand < increase in supply
P
D1
S1
D2
S2
P1
P2
0
Q1
Q2
Q
P, Q
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c. increase in demand = increase in supply
P
D1
D2 S1
S2
P2= P1
0
Q1
Q2
Q
P doesn’t change,
Q 
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Cause
and
>
D = S
<
Effect
P, Q
same P , Q
P, Q
>
D = S
<
P, Q
same P , Q
P, Q
>
D = S
<
P, Q
P, same Q
P, Q
>
D = S
<
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P, Q
P, same Q
P, Q
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Demand, Supply and Price
(Part 2)
The End
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