Change in Quantity Demand

When demand is stated Q = f(P) ceteris paribus, a change in the price of the good causes a "change in quantity demanded." The buyers respond to a higher (lower) price by purchasing a smaller (larger) quantity. Demand is an inverse relationship between price and quantity demanded.

A change in quantity demanded is a movement along a demand function caused by a change in price while other variables (incomes, prices of related goods, preferences, number of buyers, etc) are held constant. A change in quantity demanded is shown in Figure.

P_x

Р₁ d

d

0 q₁ q_x

Change in Demand

A change in demand is a "shift" or movement of the demand function. A shift of the demand function can be caused by a change in;

• incomes

• the prices of related goods

• preferences

• the number of buyers.

• Etc...

A "change in demand" is shown in Figure. An increase in demand is to the right and at every price a larger quantity will be purchased. A decrease in demand is a shift to the left.

P_x

Р₁ d d1

d2

d2 d d1

0 q₁ q_x

-2-

A supply function is a model that represents the behavior of the producers and/or sellers in a market.

QXS = fS(PX, PINPUTS, technology, number of sellers, laws, taxes,expectations... #S)

PX = price of the good,

P INPUTS = prices of the inputs (factors of production used)

Technology is the method of production (a production function),

laws and regulations may impose more costly methods of production

taxes and subsidies alter the costs of production

#S represents the number of sellers in the market.

Like the demand function, supply can be viewed from two perspectives;

Supply is a schedule of quantities that will be produced and offered for sale at a schedule of prices in a given time period, ceteris paribus.

A supply function can be viewed as the minimum prices nsellers are willing to accept for given quantities of output, ceteris paribus.

Graph of Supply

The relationship between the quantity produced and offered for sale and the price reflects opportunity cost.

Generally, it is assumed that there is a positive relationship between the price of the good and the quantity offered for sale. Figure is a graphical representation of a supply function.

P_x

P₁ s

s

0 q₁ q_x