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Lecture 3

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York University
ECON 1000
George Georgopoulos

WEEK 3 CHAPTER 3: DEMAND AND SUPPLY A market has two sides: buyer and seller, sells goods and services, resources, and inputs. They can be a physical place on an e-commerce Competitive market – many buyers/sellers (single buyer/seller has no influence) Producers only sell when they can sell at a price to cover opportunity costs Money price – dollars given up to buy something Relative price – ratio of one price to another (an opportunity cost) Price index – price of a “basket” of all goods DEMAND If you demand something then you: want it, can afford it, and plan to buy it Quantity demanded – amount people plan to buy during a time period at a particular price (5 coffees per week, 20 coffees per month) Law of demand – higher price, small quantity demanded Substitution effect – relative price rises so people get something else instead Income effect – price rises relative to income and cannot afford it Demand – relationship between price of good and quantity demanded (demand curve) Quantity demanded – point on demand curve (quantity demand at a certain price) Demand curve – relationship between demand and price (willingness-and-ability- to-pay curve (marginal benefit)) Change in demand – factor that influences buying plans (other than price):  Price of related goods (substitute may be less expensive – decrease demand or complement may be less expensive – increase demand)  Expected future prices – opportunity cost is lower today  Income – income increases – higher demand (normal good – demand increases and income increases, inferior good – income increases and demand decreases)  Expected Future income and credit – income expected to increase or credit is easy to obtain, more people will buy now  Population – higher the population higher the demand  Preferences – value people place on each good Change in quantity demanded – movement along the curve (price changes but nothing else influences it) Change in demand – shift of the curve (price remains constant but other influences change demand) SUPPLY If a firm is a supplier, they: have the resources and technology to make products, they can make a profit by producing it, and they plan to make and sell it. Quantity supplied – amount they plan to sell durin
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