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Chapter 3

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Economics (Arts)
ECON 208
Mayssun El- Attar Vilalta

Chapter 3 – Demand, Supply, and Price Sept.18.12 Quantity demanded: - Total amount that consumers desire to purchase in some time period - Quantity bought/exchanged refers to actual purchases - Quantity demanded is a flow variable - Influenced by: - products’ own price - consumers’ income - prices of other products - tastes - population - expectations about the future Demand schedules and demand curves: - Ask consumers how much they would like to buy at each given price before the amount is produced - Not the actual amount of what will be exchanged in the market Price per ton Quantity demanded U $20 110 V $40 85 W $60 65 X $80 50 Y $100 40 Distinction between stocks and flows: - Flow variable: it is so much per unit of time - Stock variable: has a meaning at a point in time - i.e. income = flow, consumer expenditure = flow, amount of money in a bank account = stock Quantity demanded and price: - Basic hypothesis - ceteris paribus: price of a product and the quantity demanded are negatively related - There are usually several products that can satisfy any given want or desire - Reducing the price of a product means that the specific desire can now be satisfied more cheaply by buying more of that product - Effect on demand due to an increase in household income: 1. Normal good: quantity demanded increases when income rises 2. Inferior good: quantity demanded falls when income rises - Distribution of income: changes for particular goods - Prices of other products: substitutes vs. complements - Change in demand = change in quantity demanded at every price – a shift of the entire curve - Change in quantity demanded = refers to a movement from one point on a demand curve to another point either on the same demand curve or on a new one Supply: - When price increases so does supply - Changes in price imply moves along the supply curve - Changes in variables other than the price shift the whole curve right or left - prices of inputs - technology - government taxes/subsidies - prices of other products (substitutes and complements) - number of suppliers entering and exiting the market Supply schedules: Price per ton Quant
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