To Be Used With The Supply And Demand Guidesupply And Demand

To Be Used With The Supply And Demand Guidesupply And Demand Graphs1re To be used with the supply and demand guide Supply and Demand Graphs 1 Review of x and Y axis A graph consists of two axes called the x (horizontal/quantity) and y (vertical/price) axes. The point where the two axes intersect is called the origin. The origin is also identified as the point (0, 0). X axis Moving right from the origin of (0,0), the numbers ascend. Moving left from the origin, the numbers descend. Y axis Moving up from the origin of (0,0), the numbers ascend. Moving down from the origin, the numbers descend. In this course, we will mainly be using the upper right quadrant of the graphic area. In economics it is the norm to show the independent variable on the y-axis and the dependent variable on the x-axis. 2 The Demand Curve Demand Curve - A downward sloping curve that measures the relationship between the price of a good and the quantity demanded by consumers. Demand - The amount that consumers are willing and able to purchase at various prices. Change in Demand – A shift in the position of the demand curve that occurs in response to a change in one or more of the determinants of demand (non-price induced change). Law of Demand – All other factors equal, the higher the price of the good or service, the lower the quantity demanded (price induced change). And the lower the price, the higher the quantity demanded. Price and Quantity Demanded vary inversely. Change in Quantity Demanded – A change in the quantity consumers are willing and able to purchase. It is a response to a change in the market price. 3 Why does the demand curve shift? The Determinants of demand Shifts in the curve (change in demand) result from changes in one or more of the non-price determinants of demand: Number of Consumers in the market (Size of Market) Consumer Tastes and Preferences Consumer Income Prices of Related Goods (Substitute Goods and Complimentary Goods) Expectations about the Future 4 The Demand Curve: Increases In Demand Increase in Demand Curve shifts to the right as a result of an increase in demand by the consumers (D1 to D2). This is caused by a change in one or more of the determinants of demand. This causes Price to increase (P1 to P2). This shows a willingness to pay a higher price for all possible quantities of the good. Suppliers respond to the higher price by increasing Quantity Supplied (q1 to q2). This process results in a new Equilibrium at e2 with Equilibrium Price P2 and Equilibrium Quantity q2.