Econ 206(A) Tutorial 2

The Demand Curve

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Price, Price, pp

Quantity, Quantity, qq

Demand, Demand, DD

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Seminar Topic 1

1. What Factors Determine the Demand for a good?

• The price of the good or service x: px

• Consumer tastes: T• Consumer incomes: Y

• The prices of substitutes: py

• The prices of complements: pz

Can be expressed as:

Dx = f (px, T, Y, py, pz)

Shifts Along a Demand Curve (changes in price of good)

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Price, Price, pp

Quantity, Quantity, qq

Demand, Demand, DD

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Shifts of a Demand Curve (Changes in other factors – taste, income etc)

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Price, Price, pp

Quantity, Quantity, qq

Demand, Demand, DD

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D’D’

q2q2

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Supply

• Relationship between price of a good/service and the amount produced by firms.

• Higher the price, the more goods/services produced.

Diagram of the Supply Curve

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Price, Price, pp

Quantity, Quantity, qq

Supply, Supply, SS

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Determinants of Supply

What determines supply of a good/service?

• The price of the good or service x: px

• Any changes in the price of inputs, this includes:• raw materials, capital, labour etc

• Changes in production technology

Shifts Along the Supply Curve

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Price, Price, pp

Quantity, Quantity, qq

Supply, Supply, SS

pp11

qq11

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pp22

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Outward Shifts of the Supply Curve

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Price, Price, pp

Quantity, Quantity, qq

Supply, Supply, SS

pp11

qq11

CCS’S’

qq22

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Market Equilibrium (Supply = Demand)Price, Price, pp

Quantity, Quantity, qq

Supply, Supply, SS

Demand, Demand, DD

p*p*

q*q*

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Seminar Topic 2 2. If the demand for a good increases, will

more be supplied?

Seminar Topics

3. What are the major assumptions economists

make concerning consumer behaviour?

– Comparability (good A & B can be compared and ranked in terms of preference)

– Non-Satiation

– Consistency (if A>B, B>C then A>C)

– Convexity (diminishing marginal utility of consumption)

– Independent utilities (Other individuals consumption does not affect your utility) – what about `positional’ goods?