Thursday, April 04, 2013

Changes in Quantity Demanded Vs Shift the Demand curve

Quantity demanded The amount (number of units) of a product that a household would buy in a given period  if it could buy all it wanted at the current market price.

Law of demand The negative relationship between price and quantity demanded: As price rises, quantity demanded decreases; as price falls, quantity demanded increases.


The data in Table 3.1 show that at lower prices, Alex buys more gasoline; at higher prices, she buys less. Thus, there is a negative, or inverse, relationship between quantity demanded and price.When price rises, quantity demanded falls, and when price falls, quantity demanded rises. Thus, demand curves always slope downward.

 Figure 3.2 that quantity (q) is measured along the horizontal axis and price (P) is measured along the vertical axis.

 Shift of Demand Curve:

A household’s decision about what quantity of a particular output, or product, to demand
depends on a number of factors, including:

  1. The price of the product in question.
  2. The income available to the household.
  3. The household’s amount of accumulated wealth.
  4. The prices of other products available to the household.
  5. The household’s tastes and preferences.
  6. The household’s expectations about future income, wealth, and prices.
Suppose that  Alex was receiving a salary of $500 per week after taxes. If Alex faces a price of $3.00 per gallon and chooses to drive 250 miles per week, her total weekly expenditure works out to be $3.00 per gallon times 10 gallons of $30 per week. That amounts to 6.0 percent of her income.

Suppose now she were to receive a raise to $700 per week after taxes. Then if she continued to buy only 10 gallons of gasoline a week it would absorb a smaller percentage of her income. The higher income may well raise the amount of gasoline being used by Alex regardless of what she was using before.Notice in Figure 3.3 that the entire curve has shifted to the right—at $3.00 a gallon the curve shows an increase in the quantity demanded from 10 to 15 gallons. At $5.00, the quantity demanded by Alex increases from 5 gallons to 10 gallons.The fact that demand increased when income increased implies that gasoline is a normal good
to Alex.

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