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Chapter 3 Notes.docx

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Department
Economics
Course
Economics 1021A/B
Professor
Jeannie Gillmore
Semester
Summer

Description
Chapter 3 NotesMarkets and Pricesa competitive market is a market that has many buyers and many sellers so no single buyer or seller can influence the priceproducers offer items for sale only if the price is high enough to cover their opportunity cost o consumers will respond to changing opportunity costs by seeking cheaper alternatives to expensive itemsthe money price is the price of an object in dollars that must be given up in exchange for itthe relative price is the ratio of one price to another o the relative price is also the opportunity costDemandif you demand something then you WANT IT CAN AFFORD IT and PLAN TO BUY ITthe quantity demanded of a good or service is the amount that consumers plan to buy during a given period at a particular price o measured as an amount per unit time ex one cup of coffee per day or seven cups of coffee per weekthe law of demand states o 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 is the quantity demandeda higher price reduces the quantity demanded for two reasons o substitution effectwhen the price of a good rises other things remaining the same its relative price rises as wellcreates an incentive to switch to a substitute o income effectwhen the price rises other things remaining the same the price rises relative to incomefaced with a higher price and an unchanged income people cannot afford to buy all the things the previously boughtmust decrease the quantities demanded of some goods or servicespeople will buy less of the good that has had its price increasedwhen any factor that influences buying plans changes then there is a change in demand o when demand increases the demand curve shifts to the rightFactors Affecting Changes in Demandprice of related goods o a substitute is a good that can be used in place of another goodex a train ride as opposed to a bus ride
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