1、Lecture two copyright： qinwang 2013Q SHUFE school of international businessDemand, Supply, and Market Equilibriumo Demand and demand functiono Supply and supply functiono Market equilibrium Demand and supply1、 Demandn Demand definitionn Demand and influencesn Demand functionn Demand curve (firm and
2、industry)n The rule of demandn Shift of demand2、 Supplyn Supply definitionn Supply and influencesn Supply functionn Supply curve (firm and industry)n The rule of supplyn Shift of supplyDemando Quantity demanded (Qd)n Amount of a good or service consumers are willing & able to purchase during a given
3、 period of timen Demand is different from needGeneral Demand Functiono Some variables that influence Qdn Price of good or service (P)n Incomes of consumers (M)n Prices of related goods & services (PR)n Taste patterns of consumers (T)n Expected future price of product (Pe)n Number of consumers in mar
4、ket (N) General demand functionQd = f(P, M, PR, T, Pe , N)General Demand Functiono b, c, d, e, f, & g are slope parametersn Measure effect on Qd of changing one of the variables while holding the others constanto Sign of parameter shows how variable is related to Qdn Positive sign indicates direct r
5、elationshipn Negative sign indicates inverse relationshipQd = a + bP + cM + dPR + eT + fPe + gNVariable Relation to Qd Sign of Slope ParameterGeneral Demand FunctionInverse for complementsPPeNMPRInverseDirectDirectDirectDirect for normal goodsInverse for inferior goodsDirect for substitutesb = Qd/P
6、is negativec = Qd/M is positivec = Qd/M is negatived = Qd/PR is positived = Qd/PR is negativef = Qd/Pe is positiveg = Qd/N is positivee = Qd/T is positiveTDirect Demand Functiono The direct demand function, or simply demand, shows how quantity demanded, Qd , is related to product price, P, when all
7、other variables are held constantn Qd = f(P)o Law of Demandn Qd increases when P falls, all else constantn Qd decreases when P rises, all else constantn Qd/P must be negativeDemand curveQ1 Q2 Q3Q3=Q2+Q1firm1 firm2 industryGraphing Demand Curveso Change in quantity demandedn Occurs when price changesn Movement along demand curveo Change in demandn Occurs when one of the other variables, or determinants of demand, changesn Demand curve shifts rightward or leftward
