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MICROECONOMICS
DR. CARMEN ASTORNE
DEMAND
-
ASSUMPTION:
COMPETITIVE MARKETS
If all sellers and buyers face the same price,
we call it the market price.
Remember that in a Perfectly Competitive market
INDIVIDUAL DEMAND
Studies the behavior of individual buyers
Where does it come from?
Subjective elements:
individual preferences
Objetive elements:
consumption possibilities
QUANTITY
DEMANDED:
CETERIS
PARIBUS:
INDIVIDUAL DEMAND
DEMAND
CURVE:
quantity
demanded
of good x
price of
good x
Qdx ( Px ; Py , I , )
(-)
LAW OF
DEMAND:
other
determinants
DEMAND
SCHEDULE
INDIVIDUAL DEMAND
P
P=5
P=4
D
Qd=3 Qd=4
Qd
+1
WILLINGNESS The highest price that a buyer is willing to pay
TO PAY:
for an extra unit of the good.
INDIVIDUAL DEMAND
The DEMAND CURVE shows:
The maximum quantitiy of a
P=5
D
Qd=3
Qd
D
Qd=6
Qd
INDIVIDUAL DEMAND
quantity
demanded
of good x
price of
good x
Qdx ( Px ; Py , I , )
(-)
other
determinants
(?)
Income and wealth
OTHER
DETERMINANTS
TYPES OF GOODS
1. Relationship to prices of other goods
Substitutes
(+)
Megabus
Greyhound
car
degrees of
substitutibility
plane
Complementary
(-)
degrees of
complementarity
2. Relationship to income
(+) Normal goods
(-) Inferior goods
Not related
noodles
ramen noodles
dentist visits
Preferences
vary across
different people
D=
P
P=4
P=3
DB
DA+ DB if P<4
DB
DA
Qd=2 Qd=6
Qd
Qd=8
if P>4
BOBS
DEMAND
FOR COFFEE
MARKET
DEMAND FOR
COFFEE
Qd
MARKET DEMAND
quantity
demanded
of good x
price of
good x
Qdx ( Px ; Py , I , )
other
determinants
Income and wealth
OTHER
DETERMINANTS
DEMAND CURVE
What happens if...
... price changes, ceteris paribus?
MOVEMENT
ALONG THE
DEMAND CURVE
P
P
Qd
DEMAND
SHIFTS
P=6
P=4
D
Qd
changes?
Qd=4 Qd=8
Qd
P=3
Qd=6
D
Qd
Qd=10
CONSUMER SURPLUS
CONSUMER
SURPLUS
(INDIVIDUAL)
CONSUMER SURPLUS
CONSUMER
SURPLUS
(MARKET)
Monetary measure of
consumer welfare
D
Qd
Qd