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Lecture 5

ECON 1020 Lecture 5: Lecture 5

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ECON 1020
Ryan A.Compton

lc78 These two problems make command systems perform very poorly Even politically communist countries have moved towards a market economic system CHAPTER 3 Demand, Supply, and Market Equilibrium: Markets: Interaction between buyers and sellers Price is discovered through these interactions Demand: Demand: amount consumers are willing and able to purchase at a given price Law of demand: as price falls, quantity demanded rises (and vise versa) Demand curve slopes downwardnegative slope because of the law of demand Why? Law of diminishing marginal utility: the more you buy and consume of a product, the less utilitybenefit you will receive Utility: some level of satisfaction Income effect and substitution effects Income effect: when price goes down, you are left with more money to buy the product you are talking about and other products Substitution effect: when the price of a good goes down, you substitute towards it and buy more of it Both effects makes you buy more of the product To get from individual demand to market demand, just add up all the individual demands Change in demand = shift of the curve (left or right) Change in any factor, not price related Change in quantity demand = shift along a demand curve (up or down) Change in price
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