5 Steps to a 5 AP Microeconomics, 2014-2015 Edition

• An increase in demandis viewed as a rightward shiftin the demand curve. There are two
  ways to think about this shift.
  a. At all prices, the consumer is willing and able to buy more units of the good. In
  Figure 6.2 you can see that at the constant price of $1, the quantity demanded has
  risen from two to three.
  b. At all quantities, the consumer is willing and able to pay higher prices for the good.


• Of course, the opposite is true of a decrease in demand, or leftward shiftof the demand
  curve. In Figure 6.2 you can see that at the constant price of $1, the quantity demanded
  has fallen from two to one.

Demand, Supply, Market Equilibrium, and Welfare Analysis ‹ 59

Quantity

Price $

Ivy Vine College

D 1

P 1

P 0

Q 1 Q 0

Figure 6.3

Quantity

Price $

Mammoth State University

D 1 D 2

Figure 6.4

Quantity

Price $

D 0

D 2

D 1

1

1 23

Figure 6.2

• Price of Substitute Goods
  Two goods are substitutes if the consumer can use either one to satisfy the same essential
  function, therefore experiencing the same degree of happiness (utility). If the two goods are
  substitutes, and the price of one good Xfalls, the consumer demand for the substitute good
  Ydecreases.

Example:

Mammoth State University (MSU) and Ivy Vine College (IVC) are considered

substitute institutions of higher learning in the same geographical region.

Ivy Vine College, shamelessly seeking to increase its reputation as an “elite”

institution, increases tuition, while Mammoth State’s tuition remains the same.

We expect to see, holding all else constant, a decrease in quantity demanded

for IVC degrees, and an increase in the overall demand for MSU degrees.

(See Figures 6.3 and 6.4.)

TIP