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EC1021 Sept 25

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Economics 1021A/B
Bruce Hammond

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 – expected future prices – income – expected future income and credit – population – preferences Prices of related goods substitute – good that can be in place of another good eg. Bus ride or train ride – if the price of a train ride increases, people will buy more of the substitute complement – hamburgers and fries – if the price of a hamburgers d
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