“c01AnIntroductionToMicroeconomics_PrintPDF” — 2022/7/19 — 7:26 — page 33 — #31
• A move upwards along the demand line (or curve) from point A and progressing through B, C and D to
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point E, is called a contraction in demand and is caused only by a rise in price. In this case, the quantity demanded contracts from 25 000 million kilograms per year at a price of $2 per kilogram (point A), to only 5000 million kilograms per year if the price rises to $10 per kilogram (point E). • In reverse, a move downward along the demand line (or curve) from point E and progressing through D, C and B to point A, is called an expansion in demand and is only caused by a fall in price. In this case, as the price falls from $10 to $2 per kilogram, there is an expansion in the quantity demanded from 5000 to 25 000 million kilograms. It is really important to understand that these movements up or down along the demand line or curve (called an expansion or contraction in the quantity demanded) are only caused by a change in price.
PR O
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While our example here has been the demand for wool, the same sort of buyer behaviour could be expected for any other good (such as grapes, hot dogs, soft drinks, TVs or iron ore) or service (such as finance, medicine, skiing instruction, gardening or entertainment) in a fairly competitive market. Remember that … … movements along a demand line or curve illustrate the law of demand: . . . demand contracts . . . demand expands
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G
E
If there is a rise in price then. . . If there is a fall in price then. . .
FIGURE 1.14 The law of demand for wool and the demand line (or curve). D1
10.00
D
E
(C
on
D
CO RR EC
Price of wool per kg ($)
TE
tra
8.00
6.00
4.00
2.00
ct
io
n)
–
De
m
C
an
d
–
(E
xp
an
sio
n)
B D1 A
U
N
0.00
If the market price per kilogram of wool was . . .
5000 10 000 15 000 20 000 25 000 Quantity of wool demanded per year (million kg)
. . . then the quantity of wool demanded per year (D1) would be . . .
A
$2.00/kg
25 000 million kg
B
$4.00/kg
20 000 million kg
C
$6.00/kg
15 000 million kg
D
$8.00/kg
10 000 million kg
E
$10.00/kg
5000 million kg
TOPIC 1 An introduction to microeconomics
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