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ECN104 - Ch 3 Notes.docx

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ECN 104
Thomas Barbiero

ECN 104 – Chapter 3 Notes Markets Interaction between buyers and sellers Markets may be: local, national, international Price is discovered in the interactions of buyers and sellers 3.1 Demand Curved Amount consumers are willing and able to purchase at a given price during specific time periods Other things equal (ceteris paribus, constant) Individual demand and market demand Law of Demand Other things equal; price falls, quantity demand rises; price rises, quantity demand falls Reasons Common Sense Law of Diminishing Marginal Utility consumption of good/service rises, marginal utility falls consumer buys more only if price falls Income Effect price falls, consumer income rises and buys more Substitution Effect consumer substitutes more expensive goods with less expensive goods Determinants of Demand Change in consumer tastes and preference pos. change shifts demand curve to the right Change in number of buyers more buyers = a shift in demand curve to the right Change in income normal goods: increase income = increase consumption of goods/services most goods/services = normal inferior goods: increase income = decrease consumption of goods/services ie: starch products (pasta, potatoes, rice, etc) Change in prices of related goods complements: price of one & demand of other move in opposite directions ex: price of lettuce increase, demand for salad dressing decreases substitutes: price of one and demand of other move in same direction ex: crest and collgate toothpaste unrelated products = no affect Change in consumers’ expectation future prices; increase future prices = increase demand NOW future income; decrease future income, decrease demand NO
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