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Lecture 4

ECON 102 Lecture 4: ECON 102 - Chapter 4 Notes
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Department
Economics
Course Code
ECON 102
Professor
Karl Pinno

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Sunday, October 2, 2016 ECON 102 Chapter 4: The Market Forces of Supply and Demand • Supply and demand are the two words that economists use most often. • Supply and demand are the forces that make market economies work. • They determine the quantity of each good produced and the price at which it is sold. • If you want to know how any event or policy will affect the economy, you must think first about how it will affect supply and demand. Markets and Competition • The terms supply and demand refer to the behaviour of people as they interact with one another in competitive markets. Before discussing how buyers and sellers behave, let’s first consider more fully • what we mean by a market and competition. Market: a group of buyers and sellers of a particular good or service Competitive market: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price Demand We begin our study of markets by examining the behaviour of buyers (consumer behaviours). Quantity demanded: the amount of a good that buyers are willing and able to purchase Law of demand: the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises Demand schedule: a table that shows the relationship between the price of a good and the quantity demanded Demand curve: a graph of the relationship between the price of a good and the quantity demanded 1 Sunday, October 2, 2016 Market Demand vs Individual Demand Market demand: the sum of all the individual demands for a particular good or service Market Demand = all the consumers added up Shifts in the Demand Curve • Any change that rises the quantities that purchasers wish to purchase at a given price shifts the demand curve to the right and vice versa. Factors that shift the demand curve: Income: • Normal good: a good for which, other things equal, an increase in income leads to an increase in demand Inferior good: a good for which, other things equal, an increase in income leads to a decrease in demand •Prices of related goods: Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the other Complements: two goods for which an increase in the pri
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