law of demand a decrease in the price of a good, all other things held constant, will cause an...
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Law of Demand
• A decrease in the price of a good, all other things held constant, will cause an increase in the quantity demanded of the good.
• An increase in the price of a good, all other things held constant, will cause a decrease in the quantity demanded of the good.
Change in Quantity Demanded
Quantity
Price
P0
Q0
P1
Q1
An increase in price causes a decrease in quantity demanded.
Change in Quantity Demanded
Quantity
Price
P0
Q0
P1
Q1
A decrease in price causes an increase in quantity demanded.
Changes in Demand
• Change in Buyers’ Tastes
• Change in Buyers Incomes– Normal Goods– Inferior Goods
• Change in the Number of Buyers
• Change in the Price of Related Goods– Substitute Goods– Complementary Goods
Change in Demand
Quantity
Price
P0
Q0 Q1
An increase in demand refers to a rightward shift in the market demand curve.
Change in Demand
Quantity
Price
P0
Q1 Q0
A decrease in demand refers to a leftward shift in the market demand curve.
Law of Supply
• A decrease in the price of a good, all other things held constant, will cause a decrease in the quantity supplied of the good.
• An increase in the price of a good, all other things held constant, will cause an increase in the quantity supplied of the good.
Change in Quantity Supplied
Quantity
Price
P1
Q1
P0
Q0
A decrease in price causes a decrease in quantity supplied.
Change in Quantity Supplied
Quantity
Price
P0
Q0
P1
Q1
An increase in price causes an increase in quantity supplied.
Changes in Supply
• Change in Production Technology
• Change in Input Prices
• Change in the Number of Sellers
Change in Supply
Quantity
Price
P0
Q1Q0
An increase in supply refers to a rightward shift in the market supply curve.
Change in Supply
Quantity
Price
P0
Q1 Q0
A decrease in supply refers to a leftward shift in the market supply curve.
Market Equilibrium
• Market equilibrium is determined at the intersection of the market demand curve and the market supply curve.
• The equilibrium price causes quantity demanded to be equal to quantity supplied.
Market Equilibrium
Quantity
Price
P0
Q0
D0 S0
Q1
P1
D1
An increase in demand will cause the market equilibrium price and quantity to increase.
Market Equilibrium
Quantity
Price
P1
Q1
S0
Q0
P0
D0D1
A decrease in demand will cause the market equilibrium price and quantity to decrease.
Market Equilibrium
Quantity
Price
P0
Q0
D0 S0
Q1
P1
An increase in supply will cause the market equilibrium price to decrease and quantity to increase.
S1
Market Equilibrium
Quantity
Price
P1
Q1
D0
Q0
P0
A decrease in supply will cause the market equilibrium price to increase and quantity to decrease.
S1 S0
Concept of the Derivative
The derivative of Y with respect to X is equal to the limit of the ratio Y/X as X approaches zero.
0limX
dY Y
dX X
Rules of Differentiation
Constant Function Rule: The derivative of a constant, Y = f(X) = a, is zero for all values of a (the constant).
( )Y f X a
0dY
dX
Rules of Differentiation
Power Function Rule: The derivative of a power function, where a and b are constants, is defined as follows.
( ) bY f X aX
1bdYb aX
dX
Rules of Differentiation
Sum-and-Differences Rule: The derivative of the sum or difference of two functions U and V, is defined as follows.
( )U g X ( )V h X
dY dU dV
dX dX dX
Y U V
Rules of Differentiation
Product Rule: The derivative of the product of two functions U and V, is defined as follows.
( )U g X ( )V h X
dY dV dUU V
dX dX dX
Y U V
Rules of Differentiation
Quotient Rule: The derivative of the ratio of two functions U and V, is defined as follows.
( )U g X ( )V h X UY
V
2
dU dVV UdY dX dXdX V
Rules of Differentiation
Chain Rule: The derivative of a function that is a function of X is defined as follows.
( )U g X( )Y f U
dY dY dU
dX dU dX