ECON 103 Lecture Notes - Demand Curve, Economic Equilibrium, Marginal Cost

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Published on 19 Apr 2013
School
Simon Fraser University
Department
Economics
Course
ECON 103
Fraser International College
ECON1034 “Principles of Microeconomics”
Chapter 3: Demand and Supply
The KEY concepts of the chapter are:
-Demand (definition, demand schedule, demand curve)
-Supply (definition, demand schedule, demand curve)
-Factors that shift demand and supply
-Market equilibrium (what it shows, what it means, be able to find equilibrium price
and quantity)
-Factors that change market equilibrium
Recall the definition of economics from Chapter 1:
Economics is a social science in which we study how people make choices and respond to
incentives in presence of scarcity.
One incentive that people respond to is a price of a good.
How are prices determined? – By markets – in other words, by demand and supply.
Recall the concept of opportunity cost from Chapter 1:
Opportunity cost refers to the best alternative forgone.
Economists think of prices as opportunity costs:
The money price is
A relative price is
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Demand can be described as Quantity of good or service consumers are willing to buy at
a given price and time period.
If you demand a good, then you
1.Want it
2.Can afford it and
3.Plan to buy it .
The quantity demanded of a good or service is the amount that consumers plan to buy during a
given time period at a particular price.
The quantity demanded is measured as per unit of time.
Many factors influence how much of a good people are planning to buy, and one of these
factors is price.
We want to look at how the quantity demanded depends in a price of a good, keeping all
other factors unchanged.
The law of demand describes a relationship between a price of a good and a quantity demanded
of a good:
PRICE Increases PRICE decreases
Qty Demand Decreases Qty Demand increases
Why do people demand a lower quantity demanded when price is higher?
1. Because of substitution effect
As when the price of the good increases the person will find better substitute and
transfer to it and buy less of it .
2. Because of income effect
As when the price of good increases , the person have limited income to buy goods
and services thus he will buy less of that product in order to maintain its expenditure.
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Substitution effect:
This can be described as when the price of good increases the people shift to the good which has
less price.
Income effect:
This can be described as when the income increases the person will buy more of the good and
when income decreases it will buy less of the product.
Or
When income increases people will buy less of inferior goods and shift to luxury such as when
the income of person increases he might prefer to travel by Cab instead of bus.
Demand schedule:
Price (dollars per unit) Quantity demanded
A 0.50 22
B 1 15
C 1.5 10
D 2 7
E 2.5 3
A graph of a demand curve:
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Document Summary

Market equilibrium (what it shows, what it means, be able to find equilibrium price and quantity) Recall the definition of economics from chapter 1: Economics is a social science in which we study how people make choices and respond to incentives in presence of scarcity. One incentive that people respond to is a price of a good. By markets in other words, by demand and supply. Recall the concept of opportunity cost from chapter 1: Opportunity cost refers to the best alternative forgone. Demand can be described as quantity of good or service consumers are willing to buy at a given price and time period. The quantity demanded of a good or service is the amount that consumers plan to buy during a given time period at a particular price. The quantity demanded is measured as per unit of time. Many factors influence how much of a good people are planning to buy, and one of these factors is price.

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