INTRODUCTION TO MICROECONOMICS TA: BÙI THỊ MỸ TRÀ
CHAP 4: THE MARKET FORCES OF SUPPLY AND DEMAND
I. Demand
- The quantity demanded of any good is the amount of the good that buyers are willing
and able to purchase.
- Price is the primary determinant of demand.
- Law of demand: the claim that the quantity demanded of a good falls when the price
of the good rises, other things equal (inverse relationship)
- Other factors can impact on demand including (Demand curve shifters)
• Number of buyers: An increase in the number of buyers causes
an increase in quantity demanded at each price, which shifts the demand curve to
the right.
• Income:
o Demand for a normal good is positively related to income. Increase in
income causes increase in quantity demanded at each price, shifts D curve to
the right.
o Demand for an inferior good is negatively related to income. An increase
in income shifts D curves for inferior goods to the left.
• Prices of related goods:
o Two goods are substitutes if an increase in the price of one causes an
increase in demand for the other. (Pizza & Hamburger, Coke & Pepsi…)
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INTRODUCTION TO MICROECONOMICS TA: BÙI THỊ MỸ TRÀ
o Two goods are complements if an increase in the price of one causes a fall
in demand for the other. (Computers & Software…)
• Tastes: Anything that causes a shift in tastes toward a good will increase demand for
that good and shift its D curve to the right.
• Expectations
- Change in demand: a shift in the D curve occurs when a non-price determinant of
demand changes (like income or # of buyers).
- Change in the quantity demanded: a movement along a fixed D curve occurs when
P changes.
II. Supply
- The quantity supplied of any good is the amount that sellers are willing and able to
sell.
- Law of supply: the claim that the quantity supplied of a good rises when the price of
the good rises, other things equal (tỉ lệ thuận)
- Change in supply: a shift in the S curve (occurs when a non-price determinant of
supply changes (like technology or costs).
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INTRODUCTION TO MICROECONOMICS TA: BÙI THỊ MỸ TRÀ
- Change in the quantity supplied: a movement along a fixed S curve (occurs when P
changes).
- Supply Curve Shifters:
o Input prices (Wages, Prices of materials…): A fall in input prices makes
production more profitable at each output price, so firms supply a larger
quantity at each price, and the S curve shifts to the right.
o Technology (A cost-saving technological improvement has same effect as a
fall in input prices shifts the S curve to the right.)
o Number of sellers
o Expectations
III. Equilibrium
- Equilibrium: P has reached the level where quantity supplied equals quantity
demanded
- Steps to determine the effects of any event:
o Decide whether the event affect S curve, D curve, or both.
o Decide whether the event affect S curve, D curve, or both/ QS, QD or both.
o Decide in which direction the curve shifts.
o Use supply-demand diagram to see how the shift changes eq’m P and Q.
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INTRODUCTION TO MICROECONOMICS TA: BÙI THỊ MỸ TRÀ
Shortage Surplus
Quantity demanded > Quantity supplied Quantity demanded < Quantity supplied
sellers raise the price, causing QD to fall, increase sales by cutting the price. QD to
and QS to rise rise and QS to fall
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