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INTERNATIONAL BURCH UNIVERSITY
FACULTY OF ECONOMICS
DEPARTMENT OF MANAGEMENT
Supply and Demand (chapter 2)
Microeconomics
STUDENTS: Sumeja Softić PROFESSOR: Erkan Ilgün
Fejsal Čelebić
Sarejevo, October 2012.
2.1 Demand
Potential consumers decide how much of good and service to buy on the basis of its price and many other factors such as their own tastes, information, prices of other goods, income and government actions.
The amount of a good that consumers are willing to buy at a given price, holding constant the other factors that influences purchases is the quantity demanded.
Demand curve (graph) shows the quantity demanded at each possible price, holding constant the other factors that influence purchases.
Figure1. Demand Curve
One of the most important things to know about a graph of a demand curve is what is not shown. All relevant economic variables that are not shown on the demand curve graph (tastes, information, prices of other goods, income of customers) are held constant.
Law of demand represents most important empirical finding in economy. So, consumers will demand more of a good for lower price when other factors are constant. This law cause demand slope downward.
Effects of other factors on demand:
A change in any factor other (taste, information, price of substitute or complement good) than a price of the good itself causes a shift of the demand curve rather than a movement along the demand curve.
Figure2. Effect the substitute good on demand curve
A change in the price of a good causes a movement along a demand curve. A change in any other factor besides the price of the good causes a shift of the demand curve.
The demand function:
Q=D (P, Pb, Pc, Y)
This function shows that quantity of a good depends from the price of that good (P), price of substitute good (Pb), price of complement good (Pc) and of customer income (Y).
2.2 The supply...