Turning in Chapter 3 homework Numbers 4, 8, 10, and 18 Theory in Action report.

Turning in

• Chapter 3 homework Numbers 4, 8, 10, and 18

• Theory in Action report

Chapter 4

Introduction to the Demand and Supply Framework

Figure 4.1 The Individual Demand Curve for Coffee

Market Demand

• Horizontal sum of quantities demanded over all people

• Horizontal??? Holding price constant

Figure 4.2 Individual and Market Demand Schedules and Curves

The Law of Demand

• There is a negative or inverse relationship between price and quantity demanded.

Changes in Demand

• Consumers’ income Normal and inferior goods

• Prices of related goods Substitutes and complements

• Tastes and preferences

• Expectations about future prices

• The number of consumers in the market

Changes in Demand (cont’d)

SELF TEST-Do we understand??SELF TEST-Do we understand??

• Substitutes Coke vs. Pepsi --- what happens if the price

of Coke increases? Qd of Pepsi?• NOTHING

Qd of Coke?• DECREASES

Demand for Coke?• NOTHING

Demand for Pepsi?• INCREASES

• Compliments Tennis Balls and Tennis Rackets --- what

happens if the price of Tennis Rackets increase?

Qd of Tennis Balls?• NOTHING

Qd of Tennis Rackets?• DECREASES

Demand for Tennis Balls?• DECREASES

Demand for Tennis Rackets?• NOTHING

Life Lessons

• If you know that the primary “hiring season” is in the spring when should you buy a suit??? Shopping off-season can mean

lower prices.

A Decrease in Demand in the Suit Market

Supply

• The quantity of a good or service that producers are willing and able to produce or offer for sale at a given set of prices over a given period of time.