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2-1
Definitions
Demand function
Quantity demand as a function of the independent
variables that influence the quantity demanded
Direct demand
The direct relationship between the quantity demanded
and price (other independent variables held constant)
Inverse demand
The direct relationship between price and quantity
demanded
Demand curve
A graphical presentation of inverse demand
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Qd = f(P, M, PR, T, Pe , N)
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Relation to Qd
Inverse
PR
b = Qd/ P is negative
c = Qd/ M
c = Qd/ M
d = Qd/ PR
Direct for substitutes
Inverse for complements d = Qd/ PR
is positive
is negative
is positive
is negative
Direct
e = Qd/ T is positive
Pe
Direct
f = Qd/ Pe is positive
Direct
g = Qd/ N is positive
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Law of Demand
Qd increases when P falls, all else constant
Qd decreases when P rises, all else constant
Qd/ P must be negative
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Qd f ( p, pb, pc, Y )
Qd 171 20 p 20 pb 3 pc 2 y
Qd / pb 20, q / pc 3, q / y 2
pb 4, pc 3, y 13
Qd 286 20 p
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Demand Schedule
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A Demand Curve
(Figure 2.1)
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Change in demand
Occurs when one of the other variables, or
determinants of demand, changes
Demand curve shifts rightward or leftward
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Shifts in Demand
(Figure 2.2)
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