Economics 1021A/B Lecture Notes - Relative Price, Demand Curve, Substitute Good

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September 25 Readings/Class Notes – Economics
Chapter 3
Competitive market – a market that has many buyers and many sellers – no single
buyer or seller can influence the price.
Money price – the number of dollars that must be given up in an exchange for an
object.
Relative price – the relationship of one price to another – relative price is an
opportunity cost.
How to express a relative price: divide the money price of a good by the money
price of a “basket” of all goods (called a price index)
Result tells us the opportunity cost of the good – how much of the “basket” we
much give up to buy it.
If you demand something, you: want it, can afford it, and plan to buy it.
Quantity demanded – amount that consumers plan to buy during a given time
period at a particular price.
Law of demand – other things remaining the same, the higher the price of a
good, the smaller is the quantity demanded; and the lower the price of a good,
the greater the quantity demanded.
Substitution effect – price of a good rises, other things can be used in its place
Income effect – when a price rises, people cannot afford to buy all the things they
previously bought – may decrease quantity of goods and services demanded.
Demand schedule – list the quantities demanded at each price when all the
other influenes on consumers' planned purchases remain the same.
Willingness and Ability to Pay
A measure of marginal benefit.
Small quantity of something – price someone is willing and able to pay for
one more unit is high.
If the quantity increases, the marginal benefit of each additional unit falls,
the highest price someone is willing to pay also falls.
Change in demand – happens when any factor that influences buying plans
changes other than the price of the good
Six main factors bring changes in demand
prices of related goods
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