Unit 1- Demand and Supply Notes

Demand: quantities people are willing and able to buy at various prices.
The Law of Demand: inverse relationship
       price increase, quantity decrease.
      price decrease, quantity increase.

what causes a "change in quantity demanded"?(Δ QD)
Δ in price
what causes a change in demand?
there are 5 determinants.
*Δ number of buyers.(population)
*Δ in buyers taste.(advertising)
*Δ number of price of related good (two types)
substitute good(instead)
complementary good(adding stuff)
 Δ in income.(two types)
normal good
inferior good.
Δ in expectation.

Supply : supply is the quantities that producer or suppliers are willing and else to produce or sale at various price.

the law of supply: direct relationship between price and quantity demanded. 
price increase , quantity decrease.
price decrease , quantity increase.

what causes a change in quantity supplied?
Δ in price.

what causes a change a supply?
there are 5 determinants.
Δ in technology.
Δ in weather.
Δ in resource or factor prices.
Δ in taxes or subsides.( money government provide)
Δ in expectation.

Demand: 

Elasticity of Demand: it is a measure of how consumers react to a change in price.
Elastic demand: Demand that is very sensitive to a change in price.
product is not necessity and it had several prostitute. 
ex: soda, candy, far coat, steak.


E>1

Inelastic Demand: demand that is not very sensitive to a change in price.
ex: salt, milk, insulin(gas). 
product is a necessity, it had few or no substitute.


E<1


Unitary Demand:

E=1.


%change in Quantity = ( new quantity - old quantity) / old quantity.

%change in Price= (new price - old price) / old price.

PED: %change in quantity demanded / %change in price.

Practice: 

• The price of Moo Ice coffee drink has risen from $1.50 - $1.70 per 500 mL container. Sales at your local corner store of Moo fall from 500 containers per week to 300 containers per week. 
• Formula:
• (New Q - Old Q) / Old Q 
• Q = Quantity 
• (New P - Old P) / Old P
• P = Price 
• Solution: 
• (300 - 500) / (500) = -0.4 
• ($1.70 - $1.50) / ($1.50) = $0.13 

•        Solution: 
• (-0.4 / 0.13 ) = 
• 3.07 (elastic demand) 

Total Revenue: Total amount of money a firm receives from selling goods and services, 

Total Revenue=Price x Quantity 

    TR = P   x  Q .

Supply:

Production Cost :
Fixed Cost: a cost that doesn't change no matter how much is produced.
ex:  people salary, mortgage ,  car payments.

Variable Cost: cost that fluctuates or changes depending upon how much is produced.
ex: electricity bills, water bills.

Marginal Cost: cost of producing one more additional unit of good.
Total Cost= Fixed Cost + Variable Cost.
TC = FC + VC.

Equations: 

• AFC = TFC/Q
• AVC = TVC/Q
• ATC = TC/Q -or- ATC = AFC + AVC 
• MC = TCn - TCo 
• TR = P x Q  

Abbreviations Meanings: 

• AFC: Average Fixed Cost
• AVC: Average Variable Cost
• ATC: Average Total Cost
• MC: Marginal Cost
• TR: Total Revenue 
• TVC: Total Variable Cost 
• P: Price
• Q: Quantity