Demand, Supply and Equilibrium by Frieda MendelsohnDemand


As we learn about the mechanics of DEMAND, we"ll be following the buying habits of Fred.

Fred likes to eat. He"ll eat anything, chicken, beef, pork, he"s not very choosy. He was asked how much chicken he desires to buy at different prices (each week).

The graph (right) represents the relationship between the price the the chicken and the lot Fred is willing to buy. Together you deserve to see, he"ll buy around 5 pounds that chicken a week in ~ $1.00 per pound. As the price walk higher, he"s wiling to buy less chicken; together the price go lower; he"s willing to purchase more. However, also when the price gets really low, 5 pounds the chicken is every he desires (any more than that and he starts cultivation feathers and also pecking for corn).

INTRODUCTION – exercise #1

exactly how much is Fred ready to spend at $2.00 every pound? in ~ $2.00 every pound, Fred is ready to to buy 4 pounds the chicken per week.

INTRODUCTION – practice #2

just how much is Fred willing to invest at $5.00 per pound? in ~ $5.00 per pound, Fred is still willing to buy a pound of chicken a week. The obviously likes chicken more than i do!


DEMAND: the relationship between the price that a an excellent and the amount of the great that one is ready to to buy in a given time period.

an alert that the higher the price (if nothing rather changes), the less Fred will want to spend. This is described as the regulation OF DEMAND.


Demand is the entirety table of number - the entire set of points on the graph - the underlying relationship in between price and quantity - in fact, the white diagonal heat on the graph!

intend the price of chicken rises from $1.00 per lb to $2.00 per pound. Fred will currently buy less chicken; however, if that were offered chicken in ~ $1.00 every pound, he"d quiet be willing to purchase 5 pounds. There"s no adjust in his willingness to buy chicken at each price - his demand for chicken has actually not changed.

A adjust in the price the the great (in this case, chicken) cannot readjust the demand for chicken due to the fact that each price is contained in the table. A readjust in price will an outcome in a readjust in the quantity world are willing to buy.

QUANTITY request – practice #1

expect the price changes from $3.00 per lb to $4.00 every pound. Is this a change in demand, or a change in the quantity demanded? there is no adjust in the demand. When the price alters people buy less, but that"s what the need curve currently says!


By currently you"re wonder what can reason a adjust in Demand.

A readjust in demand can be caused by something that causes the straightforward relationship in between price and also quantity to change.

come get ago to Fred, mean the price the beef decreases.

Fred likes chicken, yet now he deserve to eat more steak due to the fact that it’s cheaper. So, Fred substitutes one steak dinner for one chicken dinner. The price the chicken hasn"t changed, however Fred"s mindset - his willingness come buy chicken at that price - has changed. So, Fred"s demand for chicken has decreased due to the fact that the price the a substitute decreased.

A readjust in price of a substitute good can cause the need of the an initial good come change.

Look at the brand-new demand curve and at the table. At each price, Fred is currently willing to buy much less chicken and at anything end $3.00 per pound, the would rather buy steak! This is a readjust in demand.

So, one aspect which will cause the need to change is the price the a connected good.

You are watching: Today, people changed their expectations about the future. this change

SUBSTITUTES – exercise #1

suppose the price of fish goes up. What will occur to Fred"s demand for chicken? demand increases. An alert that the old table of amounts is now changed. Fred is ready to buy an ext chicken at every price. This is what a readjust in need means!

SUBSTITUTES – practice #2

Suppose the price that chicken goes down. What will happen to Fred"s demand for chicken? (Careful, this is a cheat question). There is no change in demand. The amount that Fred will certainly buy has actually increased, yet he"d still but the same amount in ~ the old price. At $3.00, Fred is ready to purchase 3 pounds that chicken a week. As soon as the price drops to $2.00, he"ll purchase 4 pounds. Because economists use the word demand to refer to the entirety relationship in between prices and quantities, this is not a change in demand - the is simply a readjust in the amount Fred will certainly buy. Us could likewise call this a motion along the curve quite than a activity of the need curve.


Related goods can likewise be COMPLEMENTS - that is, things that are provided together in some way. When the price that one changes, the need for the other good is likely to move in opposing direction.

Suppose the price the biscuits walk up. Fred will buy less biscuits due to the fact that the price walk up. Fred constantly has biscuits with chicken (they enhance each other). So, Fred"s need for chicken is most likely to fall because he"ll eat a small less chicken and biscuits (together). This is a change in need for chicken because Fred is willing to buy less chicken at every price the chicken.

Look in ~ the table and also the graph. Again, at every price, the amount that Fred is willing to buy has actually changed. This is a diminish in demand.

COMPLEMENTS – practice

suppose the price that corn goes down. (Fred loves corn ~ above the cob v chicken). What will happen to Fred"s need for chicken? over there is an increase in demand. Fred will buy much more corn (moving follow me his demand curve for corn) when the price that corn falls. This will rise his willingness come buy chicken to go with the corn, even though the price of chicken hasn"t changed.


There are other factors, i m sorry will readjust Fred"s demand for chicken.

If he it s okay laid off, he"s more than likely going to eat a lot more macaroni and cheese instead of chicken - or at least chicken casserole rather of roast chicken. So, his demand for chicken will autumn (since there"s been no change in the price the chicken - just his willingness come buy chicken).

So, alters in income can affect the need for a good.

Again, at every price, Fred is ready to to buy a smaller sized amount the chicken. There is a new quantity (Q") column in the table and also the demand curve has shifted. This is a adjust in demand.

INCOME – exercise

Now, Fred it s okay a new job that pays even far better than the old one. Fred isn"t rich; he just acquired a little raise. What will take place to Fred"s need for chicken? there is boost in demand. Fred"s earnings increased, for this reason he"s ready to buy much more chicken at each price.


What else could happen to poor Fred?

One opportunity is the the operated doctor General could declare that a chicken a day keeps the medical professional away. (Chicken prevents heart attacks, because that example).

Fred will now buy an ext chicken every week (at the same old prices) due to the fact that his tastes have actually changed. This is a adjust in demand since his behavior adjusted even though the price of chicken didn"t change.

A adjust in tastes (or attitudes) can cause a readjust in demand.

through the way, taste doesn"t just use to food - it"s a catchall hatchet that economists use to dbrickandmortarphilly.comribe changes in attitude, which can be about anything from the latest garments fad come solid rubbish disposal and also environmental awareness!

Again, Fred is ready to buy an ext chicken at each price the chicken. His demand for chicken has increased.

TASTES– practice #1

mean Fred do the efforts a new chicken recipe, which that absolutely can"t get enough of. What wake up to his demand for chicken? there is rise in demand. Because Fred can"t get sufficient chicken made through his brand-new recipe, he need to be buying an ext chicken at each price.

TASTES – exercise #2

suppose Fred"s wife gets that a new Barbeque. Fred just grills steak on the BBQ - chicken is beyond is skills. What happens to his demand for chicken? need for chicken decreased. Because Fred is buying more steak come BBQ, he"s buying less chicken at the exact same old prices. Fred"s actions has changed even though the prices stay the same.

TASTES – exercise #3

Fred has actually just decided that the can"t stand the sight of fish, but he quiet likes chicken. What wake up to his demand for chicken? here is rise in demand. Because Fred no much longer eats fish, he"s got to eat something, so he"ll eat more chicken (along with other food). His actions has changed, therefore the line representing that habits (the demand curve) has actually changed.

TASTES – exercise #4

Fred has finally learned come BBQ chicken. Mmmmmm, that loves it! What wake up to his need for chicken? over there is rise in demand. Fred will buy an ext chicken for the barbeque simply because he likes it! The price that chicken hasn"t readjusted - simply his behavior.


Finally, there"s one an ext disaster to befall poor old Fred - he"s heard that the price that chicken will certainly be walk up following week (it hasn"t unable to do up yet, though). Fred has a huge freezer, so ns think he"ll probably stock that up. His demand for chicken will increase (this week).

A change in expectations (can cause a change in demand.

This can gain a little tricky because, when a readjust in the price of chicken never causes the need for chicken to increase, a adjust in the meant price that chicken can cause the need to increase! What"s the difference? The difference is the the price has actually not adjusted - just people"s beliefs (or attitudes) about the future have actually changed. They room willing come buy a different amount the chicken at each existing price.

Yet, again, Fred is willing to buy much more chicken at every price of chicken. Demand has increased.


suppose Fred expects the price that chicken to loss next week. What wake up to his demand for chicken this week? remember the price that chicken hasn"t changed yet. Need for chicken decreased. Since Fred expects prices to go down following week, why need to he buy it now? He"d be better off eating hamburger this week and also stocking up on chicken next week.

an overview

1. A change in the price of the great never changes the demand for the great - it transforms the amount demanded.

2. The following factors will readjust demand (i.e. Change the demand curve):

the price of a related an excellent (substitute or complement) earnings tastes (attitudes) expectations (generally about future prices)

3. Generally, the greater the price that a good, the less people are willing to buy; the reduced the price, the an ext people are willing to buy. This is described as the law of Demand.


Fred was really considerate to answer ours questions about how much chicken he’d be willing to purchase at each of the prices. Usually, us don’t have actually this kind of information. Still, also if we don’t know precisely how much he will buy, we know something around his need curve because that chicken. That is, we understand that if the price of beef increases, he’ll eat an ext chicken. And, we recognize if he decides that chicken is “bad for him,” then he’ll be ready to buy less chicken at every price.

So, us really won’t need numbers on our graphs – they represent much more factual knowledge than we’re most likely to have. Instead, we’ll just say that demand increases or to reduce (or doesn’t change), yet not by just how much.

Let’s look at the neighborhood’s babysitting services. The greater the price per hour, the fewer hrs of babysitting world will purchase (they’ll remain home, take it the kids along, leaving them through a relative, swap v a neighbor, or leaving them residence alone). The reduced the price that babysitting services, the much more hours they’d be ready to buy.


A brand-new hit movie is opened at the theater that everybody desires to see (rated R). What happens to the demand for babysitters?

Since everybody wants to view the movie, they’ll require babysitters to stay with the small darlings while castle go out (the movie is rated R ~ all). No prices have actually changed, but people are willing come hire an ext sitters at each price. This is one increase in demand.

practice #2

Restaurants in the ar just came up with brand-new “ kiddie” menus, which have dinners that only price $2.50. Currently Mom and Dad have the right to take the kids along! What happens to the need for babysitters?

Taking the kids out come eat is a substitute because that going out without castle (and rental a sitter). Ns know, for some people, it’s not a substitute in ~ all. However, not everyone needs to feel that it’s a substitute for there to be a far-reaching change in the total habits of every the parents in the neighborhood. The demand for sitters will decrease, together some civilization will take it their tiny darlings through them.


Many civilization in the ar work at “The Plant,” i m sorry just offered everybody a advanced (they had actually a great year). What wake up to the need for babysitters?

When incomes go up, world are ready to spend an ext – specifically on recreation activities. So, at each price, human being are willing to hire much more sitters. This is an increase in demand.


The video store in the community lowers the rental price because that movies. What wake up to the demand for babysitters?

This time, the price the a substitute great decreased. World are walking to relocate along their demand for videos and rent a bigger quantity. This is a substitute because that going out, therefore they won’t rental a babysitter as often. This is a decrease in demand. If friend looked at the babysitter’s behavior (e.g. More willing come sit in ~ a home that has a DVD player) you’re looking at supply. You re welcome be patient, we’ll get there. Remind me to discuss this later.


realm State College has just opened a unit in the neighborhood and many parents space enrolling together students. They find that they require a avestor to permit them to see their instructors. What happens to the need for babysitters?

People currently have an additional reason to hire a sitter. Again, not everyone will certainly go to college and not everyone that goes to college will need a sitter. However, there will certainly be some additional use the sitters together adults try to carve out the moment for school.


Babysitters got together and also decided to provide a discount to families who have actually premium movie channels (e.g. HBO). What happens to the demand for babysitters? (Careful, this is tricky)

Only the price has changed. Over there is no change in demand. The sitters are providing a discount to those families with premium movie networks – this is a diminish in the price (at least to some parents). So, while there will be a activity from one point on the demand curve to another, the demand curve will not adjust at all. Some people will hire an ext sitters in ~ the lower price; but if the price goes ago up, they’ll go ago to the very same use of babysitters they had before.

Tired that chicken and babysitters? an excellent … now you can practice through a selection of problems.

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Fees in ~ the regional golf course simply went up. What perform you think will occur to the need for golf balls?

If the fees in ~ the golf food increase, part golfers may play less golf (remember, no everyone needs to do the same decisions because that there to it is in a far-reaching change in behavior). Due to the fact that people will certainly be playing less golf, they’ll it is in buying fewer golf balls. So, the demand for golf balls has actually decreased, due to the fact that the price of a complement an excellent increased.

exercise #8

critical year, the football team saw the at sight Bowl. What execute you think will take place to the demand for football ticket this year?

When a football team walk well, human being are much more willing to salary to watch it. It’s exciting! So, in ~ every price that tickets, fans are more willing to walk to the game. This is a change in tastes – peoples desire to check out the game has increased.


The regional donut shop just distributed a the majority of coupons because that “two because that the price that one” donuts. What perform you think will occur to the need for coffee?

Coffee and also donuts space complement goods – the is many civilization consume them together. If the price of donuts reduce (that’s the effect of the coupon, after all), some added people will prevent for donuts and also coffee. This is an increase in the demand for coffee.


OPEC has failed to with an agreement on the price that oil and prices have fallen. What will occur to the need for gasoline?

Only the price that gasoline has actually fallen – naught else has changed. Once the price the a good changes, world buy an ext by moving along their demand curve. This is not a change in demand. The course, there’s constantly the possibility that expectation for more price declines can have one effect, however I won’t get very far without gasoline – ns think I’ll walk ahead and also fill ‘ er increase now!


civilization are fear of another big increase in the price of gasoline. What do you think will occur to the need for homes in the external suburbs?

Here we have a mix of principles – expectations and also the price the a connected good. In this case, world expect one increase in the price the a complement. How are lock complements? Generally, the farther the end in the suburbs one lives, the more gasoline that takes to get to work (I understand that’s no true for everybody, but it’s true for many). So, the greater the price of gasoline, the much more it prices to commute. This makes moving to the suburbs much more expensive – world are much less willing come buy a residence at each price the houses.


as soon as interest rates rise (the price of loans), what happens to the demand for houses?

First, let’s look in ~ the connection between interest rates and buying a residence (let’s leaving the contractor out of it because that now). Once buying a house, the limiting components are the down payment and the monthly mortgage costs. The higher the attention rates, the greater the monthly payment will be because that a loan of the exact same size. So, buyers will certainly be less willing come buy a house at each price the houses. The price of a match good, mortgage loans, has increased – the demand for residences will decrease.


together landfills become much more crowded, “tipping fees” (the fee come dump a pack of garbage) room going up. What execute you think will happen to the town’s willingness come recycle?

Towns have to pay come dump garbage into landfills. If the dues increases, the legislators will begin to look because that substitutes (they’ll move along their demand curve for rubbish disposal). This increases the need for substitutes, and one together substitute is recycling. So, an increase in the tipping fees in ~ landfills will certainly increase demand for viable substitutes to getting rid of of heavy waste.