2. The Law of Demand
The Law of Demand states that as Demand
goes up Price goes down.
There is an Inversely proportional relationship
between Price and Demand
3. The Demand Curve
•The demand curve is
downward sloping,
indicating the negative
relationship between
the price of a product
and the quantity
demanded.
4. The Demand Curve
•Since it is downward-sloping, this means that
as price decreases, consumers will buy
more of the good.
5. Hypothetical goods that are
exempted from the Law of Demand
These goods exempted from the Law of Demand
because they have an upward sloping demand
curve rather than the usual downward slope.
Giffen Goods
inferior goods that are substitutes for more expensive
goods, that people buy more when they cannot afford a
superior good.
Veblen Goods
goods that people buy because it is expensive, as a
show of wealth.
6. Changes in the Demand Curve
Change in price will result in a movement
along the demand curve
7. Changes in the Demand Curve
Change in a non-price variable
For a NORMAL GOOD (when Income increases)
There is an
outward shift
8. Changes in the Demand Curve
Change in a non-price variable
For an INFERIOR GOOD
There is an
inward shift
D1
D2
S
P
Q
P1
P2
Q2 Q1
9. The Law of Supply
The Law of Demand states that as Supply goes
up Price goes up as well.
There is a directly proportional relationship
between Price and Supply.
10. The Supply Curve
•The supply curve is
upward sloping,
indicating the positive
relationship between
the price of a product
and the quantity
supplied.
12. Changes in the Supply Curve
Change in price will result in a movement
along the supply curve
13. Changes in the Supply Curve
Change in the cost of production
supply will shift outward if costs decrease and;
supply will shift inward if they increase.
Change in the expected Demand
supply will shift outward if enthusiasm is expected to
increase and;
supply will shift inward if there is an expectation for
consumers preferences to change in favor of an
alternate good or service.
14. Government Intervention
Done by the government to combat
market inequities and promote fairness.
Three common ways of intervention:
Taxation
Regulation
Subsidies
15. Regulation (Price Control)
Price Ceiling
to protect consumers of a certain good or
service by establishing a maximum price,
a government wants to ensure the good
is affordable for as many consumers as
possible.
16. Regulation (Price Control)
Price Floor
to protect producers of a certain good or
service by establishing a minimum price,
a government wants to ensure the good
is profitable for as many producers as
possible.
17. Regulation (Price Control)
Effects of Price Control
Price Ceiling = Shortages of goods
Price Floor = Supply Surplus
= Consumer Surplus
= Producer Surplus