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Chapter 2 - Microeconomics

Chapter 2 discusses the market forces of supply and demand, focusing on the concept of demand, which is defined as the quantity of a good that buyers are willing and able to purchase. It explains the law of demand, illustrating the inverse relationship between price and quantity demanded, and provides examples of demand schedules and curves. Additionally, it covers determinants of demand, including the prices of related goods, and distinguishes between substitute and complementary goods.

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2 views

Chapter 2 - Microeconomics

Chapter 2 discusses the market forces of supply and demand, focusing on the concept of demand, which is defined as the quantity of a good that buyers are willing and able to purchase. It explains the law of demand, illustrating the inverse relationship between price and quantity demanded, and provides examples of demand schedules and curves. Additionally, it covers determinants of demand, including the prices of related goods, and distinguishes between substitute and complementary goods.

Uploaded by

tram.bui
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 2: The market forces of supply and demand

Demand (Cầu)
The quantity demanded of any good is the amount of the good that buyers are willing and able to
purchase

Need (nhu cầu) # demand (need is only demand when it has ability to buy)

Example: you are willing to buy a house, but you are not able to buy it

Options:

Lowering the price

Installment payment

Deferred payment/ Late payment

Promotion

The law of demand: claim that the quantity demanded of a good falls when a price of the good
rises, other things equal

Price (P) ↑ -> quantity demanded (Q D) ↓

Price (P) ↓ -> quantity demanded (Q D) ↑

P and Q D : inverse relationship

Demonstrating demand

Demand schedule: a table that shows the relationship between the price of a good and the
quantity demanded

E.g: Helen’s demand for lattes

Notice that Helen’s preferences obey the Law of Demand

Price of lattes Quantity of lattes demanded


$0.00 16
1.00 14
2.00 12
3.00 10
4.00 8
5.00 6
6.00 4
Helen’s Demand Schedule & Curve

Demand schedule

Demand curve

Demand function : P = -aQ D + b

Q D = -cP + d => Q D = f(P) (the amount of goods is affected by the price)

Q D = f( P x, P y , I, T, E,N)

y=ax+b => y=f(x) (y is only affected by x)

P= aQ D +b

Q D= cP + d

P x: Price of the good itself


P y : Price of the related good

I: Income of consumers

T: taste of consumers

E: expectation of consumers

N: number of consumers

Determinants in demand function

Price of related goods ( P y ¿

Substitute goods: X and Y are substitutes if the usage of X can be replaced by the usage of Y,
provided that the initial consumption target is unchanged

E.g: Coke and Pepsi are substitutes

P pepsi ↓ -> Q D pepsi ↑ -> Q Dcoke ↓

P pepsi ↑-> Q D pepsi ↓ ->Q Dcoke ↑

¿> P pepsi >< Q Dcoke: positive

If our competitor increases their price -> it is good for our business -> normally, this is rare

If 2 companies try to lower their price -> soon 1 or 2 will die -> they need to find another way to
compete, e.g: quality, service, promotion and advertising

Complementary goods: X and Y are complementary if the usage of X must go together with the
usage of Y to ensure the initial utility of both goods

E.g: Gas – Car

Pcar ↑ -> Q Dcar ↓ -> Q Dgas ↓

Pcar ↓ ->Q Dcar ↑ -> Q Dgas ↑

Pcar >< Q Dcar : inverse relationship

E.g: Gilette razor blades

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