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Lecture 3

# Lecture 3 on Demand & Supply

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School
Department
Economics
Course
ECON 1000
Professor
Steven Edwards
Semester
Fall

Description
LECTURE #3 DEMAND AND SUPPLY NOTES - A market is any arrangement that enables buyers and sellers to get info and do business with eachother - Competitive Market: Market that has many buyers and sellers so no single buyer or seller can influence the price - Money Price: Amount of money needed to buy it - Relative Price: Ratio of its money price to the money price of the next best alternative good is its opportunity cost -DEMAND - If you demand something then you want it, you can afford it, and have made a definite plan to buy it - Wants are unlimited desires or wises people have for goods/services. - Quantity demanded of a good/service is the amount that consumer will buy during a particular time at a certain price - The demand is the relationship between the price of a product and the quantity demanded, ceteris paribus - Law of Demand: The higher the price of a good the smaller the quantity demanded, the lower the price of a good the higher the quantity demanded. - The law of demnd results from two concepts 1) Substitution Effect When the relative price of a good or service rises people seek substitutes for it, so the quantity demanded of the good or service decreases. 2) Income Effect When the price of a good or service rises relative to income, people cannot afford all the thing they previously bought, so the quantity demanded of the good/service decreases. Demand refers to the entire relationship while quantity demanded refers to a specific point LECTURE #3 DEMAND AND SUPPLY NOTES Price AS THE PRICE OF THE GOOD DECREASES THE QD (quantity demanded) increases (shifts right) QD - Rise in the price brings a decrease in the QD and the movement up along the demand curve. - A fall in the price brings and increase in the QD and a movement down along the demand curve. - The six main factors that change demand are 1) Price of Related Goods - Other products and prices, substitutes and complimentary goods. - Will depend on the price of substitutes - If the price of the substitute goes up the demand of the other product will increase - If gasoline prices are high car purchasing decreases 2) Expected Future Prices - Product can be stored and you can spend the money today - Reschedule the purchase - Current demand for a good increases if the expected future price of the product increases 3) Income -When income increases consumer buy more
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