There is an inverse relationship between the price of a good and the quantity demanded. The quantity demanded is affected by the price of the good, consumer income, price of substitutes and complements, and consumer tastes. For individual consumers, demand decreases as price increases and increases as income rises, assuming the good is normal. Market demand is the horizontal summation of individual demands and is affected by similar factors as well as the number of consumers.

1. Chapter 3 Demand Theory www.slideshare.net/themhk

2. There is an inverse relationship between the price of a good and the quantity of the good demanded per time period. Substitution Effect Income Effect www.slideshare.net/themhk

3. www.slideshare.net/themhk Individual Consumer’s Demand Qd X = f(P X , I, P Y , T) quantity demanded of commodity X by an individual per time period price per unit of commodity X consumer’s income price of related (substitute or complementary) commodity tastes of the consumer Qd X = P X = I = P Y = T =

4. www.slideshare.net/themhk Qd X = f(P X , I, P Y , T)  Qd X /  P X < 0  Qd X /  I > 0 if a good is normal  Qd X /  I < 0 if a good is inferior  Qd X /  P Y > 0 if X and Y are substitutes  Qd X /  P Y < 0 if X and Y are complements

5. Horizontal summation of demand curves of individual consumers Bandwagon Effect Snob Effect www.slideshare.net/themhk

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7. www.slideshare.net/themhk Market Demand Function QD X = f(P X , N, I, P Y , T) quantity demanded of commodity X price per unit of commodity X number of consumers on the market consumer income price of related (substitute or complementary) commodity consumer tastes QD X = P X = N = I = P Y = T =

8. Market Structure Monopoly Oligopoly Monopolistic Competition Perfect Competition Type of Good Durable Goods Nondurable Goods Producers’ Goods - Derived Demand www.slideshare.net/themhk

9. www.slideshare.net/themhk Q X = a 0 + a 1 P X + a 2 N + a 3 I + a 4 P Y + a 5 T P X Q X Intercept: a 0 + a 2 N + a 3 I + a 4 P Y + a 5 T Slope:  Q X /  P X = a 1

10. www.slideshare.net/themhk Linear Function Point Definition

11. www.slideshare.net/themhk Arc Definition

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13. www.slideshare.net/themhk P X Q X MR X

14. www.slideshare.net/themhk TR Q X MR<0 MR>0 MR=0

15. Demand for a commodity will be more elastic if: It has many close substitutes It is narrowly defined More time is available to adjust to a price change www.slideshare.net/themhk

16. Demand for a commodity will be less elastic if: It has few substitutes It is broadly defined Less time is available to adjust to a price change www.slideshare.net/themhk

17. www.slideshare.net/themhk Linear Function Point Definition

18. www.slideshare.net/themhk Arc Definition Normal Good Inferior Good

19. www.slideshare.net/themhk Linear Function Point Definition

20. www.slideshare.net/themhk Arc Definition Substitutes Complements

21. International Convergence of Tastes Globalization of Markets Influence of International Preferences on Market Demand Growth of Electronic Commerce Cost of Sales Supply Chains and Logistics Customer Relationship Management www.slideshare.net/themhk