Week 2 study guide

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Department
Economics for Management Studies
Course
MGEA02H3
Professor
Gordon Cleveland
Semester
Fall

Description
Chapter 3 Demand, Supply, and Price Notes 3.1 Demand What is Quantity Demanded? N quantity demanded : the amount of a good or service that consumers wish to purchase during some time period N it is important to notice two things: first, QD is a desired quantity and second, QD refers to a flow of purchases N total amount of some product that consumers in the relevant market wish to buy in a given time period is influenced by the following important variables: products own price, average income, prices of other products, tastes, distribution of income, population, and expectations about the future Quantity Demanded and Price N a basic economic hypothesis is that the price of a product and the quantity demanded are related negatively, other things being equal; that is, the lower the price, the higher the quantity demanded; the higher the price, the lower the quantity demanded N the British economist Alfred Marshall (1842 1924) called this fundamental relation the law of demand Demand Schedules and Demand Curves N demand schedule : table showing relationship between quantity demanded and price of commodity, other things being equal N demand curve : graphical representation of relationship between QD and price of commodity, other things being equal N demand : entire relationship between the quantity of a commodity that buyers wish to purchase and the price of that commodity, other things being equal N demand curve is drawn with the assumption that everything except the products own price is held constant; a change in any of the variables previously held constant will shift the demand curve to a new position N the variables that affect demand are: average income, prices of other goods, tastes, distribution of income, population, and expectations about the future N substitutes : goods that can be used in place of another good to satisfy similar needs or desires N complements : goods that tend to be consumed together N change in demand : change in quantity demanded at each price of commodity, represented by shift in whole demand curve N change in quantity demanded : a change in the specific quantity of the good demanded, represented by a change from one point on a demand curve to another point, either on the original demand curve or a new one N a change in quantity demanded can result form a shift in the demand curve with the price constant; from a movement along a given demand curve due to a change in the price; or from a combination of the two 3.2 Supply What is Quantity Supplied? N quantity supplied : the amount of a commodity that producers wish to sell during some time period N quantity supplied of a product is influenced by the following variables: products own price, prices of inputs, technology, government taxes or subsidies, prices of other products, expectations about the future, and number of suppliers Quantity Supplied and Price N basic hypothesis of economics is that price of product and quantity supplied are related positively, other things being equal; that is, the higher the products own price, the more its producers will supply; the lower the price, the less its producers will supply Supply Schedules and Supply Curves N supply schedule : table showing relationship between quantity supplied and the price of a commodity, other things being equal N supply curve : graphical representation of relationship bn quantity supplied and price of commodity, other things being equal N supply : the entire relationship between the quantity of some commodity that producers wish to sell and the price of that commodity, other things being equal N change in any variables (other than products own price) that affects quantity supplied will shift supply curve to new position N change in supply : change in quantity supplied at each possible price of commodity, represented by shift in whole supply curve N change in quantity supplied : a change in the specific quantity supplied, represented by a change from one point on a supply curve to another point, either on the original supply curve or on a new one N a change in quantity supplied can result from: a change in supply, with the price constant; a movement along a given supply curve due to a change in the price; or a combination of the two 3.3 The Determination of Price The Concept of a Market N market : any situation in which buyers and sellers can negotiate the exchange of goods or services Graphical Analysis of a Market N excess demand : a situation in which, at the given price, quantity demanded exceeds quantity supplied N excess supply : a situation in which, at the given price, quantity supplied exceeds quantity demanded N excess supply causes downward pressure on price and excess demand causes upward pressure on price N equilibrium price : the price at which quantity demanded equals quantity supplied; also called the market-clearing price N disequilibrium price : a price at which quantity demanded does not equal quantity supplied N disequilibrium : a situation in a market in which there is excess demand or excess supply Changes in Market Prices N comparative statics : the derivation of a predictions by analyzing effect of change in some exogenous variable on equilibrium www.notesolution.com
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