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notes on chapter 4 of economics book by mankiw. graphs are taken from the same. topics covered WHAT IS MARKET? WHAT DETERMINES THE QUANTITY AN INDIVIDUAL DEMANDS? THE DEMAND SCHEDULE AND THE DEMAND CURVE MARKET DEMAND VERSUS INDIVIDUAL DEMAND SHIFTS IN THE DEMAND CURVE WHAT DETERMINES THE QUANTITY AN INDIVIDUAL SUPPLIES? THE SUPPLY SCHEDULE AND THE SUPPLY CURVE MARKET SUPPLY VERSUS INDIVIDUAL SUPPLY SHIFTS IN THE SUPPLY CURVE SUPPLY AND DEMAND TOGETHER THREE STEPS TO ANALYZING CHANGES IN EQUILIBRIUM

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Supply and Demand Guide To solve the homework problems do the following: 1. Identify the determinant change 2. Shift the appropriate curve in the correct direction 3. Change price appropriately 4. Move along the other curve (the one that did not shift) in response to the price change. The following information will tell you the determinants and how the change, as well as definitions of the key terms. Demand Demand: The amount that consumers are willing and able to purchase at various prices. Law of Demand: Price and Quantity Demanded vary inversely. Quantity Demanded: The amount that consumers are willing and able to buy at a particular price. Change in Quantity Demanded: Changes in price change the quantity demanded. This is a Movement Along a Demand Curve in Response to a Price Change. Change in Demand: This is a shift in the position of the demand curve, either upward or downward. If the curve shifts upward, consumers are saying they will pay more for all quantities of the good or service. If it shifts downward, consumers are saying they will pay less for all quantities of the good or service. Determinants of Demand: The Demand Curve will shift only when one (or more) of the Determinants of Demand changes. These determinants are: 1. Size of Market: the number of consumers in the market for the good or service. If this factor increases, the curve shifts upward (increase in demand). If this decreases, the curve shifts downward (decrease in demand). 2. Consumer Tastes and Preferences: if these shift in favor of a product, the demand curve shifts upward (demand increases); if these shift against a product, the demand curve shifts downward (demand decreases). 3. Consumer Income: as the income of consumers increase, consumers purchase more of all normal goods (assume all the goods in the homework are normal goods), this shifts the demand curve upward (demand increases); if income decreases, then consumers buy less of all normal goods, this shifts the demand curve downward (demand decreases). 4. Prices of Related Goods: a. Complimentary Goods: These are goods that are used to together like peanut butter and jelly. If the price of peanut butter goes up, the Quantity Demanded of peanut butter will decrease (a movement along a demand curve in response to a price change). However, the Demand for jelly will decline (decrease in demand) as fewer people buy it to go with the peanut butter, since they are buying less peanut butter. b. Substitute Goods: These are goods that are used in place of each other. If the price of Coke Cola goes up, the Quantity Demanded of Coke does down (a movement along the demand curve). But the Demand for Pepsi – the substitute good – goes up as people substitute the lower priced Pepsi for the higher priced Coke (the Pepsi demand curve shifts upward). 5. Expectations about the Future: If people have a positive view of the future they will consumer more and save less. This shifts th ...

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