Demand, Supply and MCP

Unit 2
 Law
of demand is an inverse (opposite)
relationship between the quantity
demanded and the price of a product.
 Demand is the quantities of a particular
good or services that customers are
willing and able to buy at a particular
time at different prices.
 Price Effect is the inclination (tendency)
of people to buy less of things at higher
prices than they would at a lower price.
 Buying
 Diminishing
personal value
 Diminishing
marginal (minor) utility (service
or value)
 Price
and availability of substitutes
 We
distinguish between changes in quantity
demanded, movements along a single
demand curve caused by price changes, and
shifts in the entire curve caused by a change
in a factor other than price.
A change in quantity demanded can be
illustrated by a movement between points along
a stationary demand curve. Once again, demand
is influenced by price.
A shift in demand can also occur. A shift in
demand refers to an increase (rightward
change) or decrease (leftward change) in the
quantity demanded at each possible price. This
shift is influenced by non-price determinants.
An example of an increase and a decrease in demand
are pictured below.
 Income
 Price/availability
of substitutes
of buyers
 Price/availability
 Tastes
of complements
and preference (trends)
 Expectations
Which of the following will not change the
demand for movie tickets
A change in the cost of babysitting services
b. A change in the price of movie tickets
c. A change in the quality of TV and Cable
d. A change in the income of movie goers
Elasticity refers to how responsive a product is
to a price change.
 Price elasticity exists when the price effect is
 Price inelasticity exists when the price effect
is small or inexistent.
Total Revenue = Price x Quantity
Text p. 39
 The
costs of producing additional goods and
services are know as marginal costs.
 Marginal costs usually increase as a business
increases production.
 A decision to produces something involves
opportunity costs. Marginal costs are the
opportunity cost of changing production
 Supply
is the various quantities of a
product that producers and sellers are
willing and able to sell as different prices
at particular time.
 Sellers want to sell more at higher prices
than at lower prices.
 The Law of Supply is a positive
relationship between price and the
quantity supplied.
How is the Law of Demand and the Law of
Supply similar/different?
 Changes
in the marginal cost of production
(tech industry)
 Change
in the number of producers
 Change
in expectations
 Elastic-
responsiveness to price change; the
price effect is large
 Inelastic-
less responsive to price change; the
price effect is relatively small
Market Clearing Price- the price that consumers are
willing to pay and suppliers are willing to sell at
Surplus- how much more of a product sellers want to sell
than buyers want to buy at a given price
Shortage- how much more of a product buyers want to buy
at any given price than sellers want to sell
Rationing- the distribution or allocation of a product
Market clearing price is important because…it helps
decide what to produce, how to produce it, and who
should receive it

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