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Chapter 4

Chapter 4 Demand.docx

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Krishnakali Sen Gupta

Chapter 4: The Market Forces of Supply and Demand  A market is a group of buyers and sellers of a particular product.  A competitive market is one with many buyers and sellers; each has a negligible effect on price. (similar goods)  In a perfectly competitive market:  All goods exactly the same  Buyers & sellers so numerous that no one can affect market price – each is a “price taker”  In this chapter, we assume markets are perfectly competitive. (To simply our analysis) Demand  The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. Qd= F ( # of buyers, price, price of other goods income and expectations)  Law of demand: the claim that the quantity demanded of a good falls when the price of the good rises, other things equal The Demand Schedule  Demand schedule: a table that shows the relationship between the price of a good and the quantity demanded  Example: Helen’s demand for lattes.  Notice that Helen’s preferences obey the Law of Demand. Price Quantity of lattes of lattes demanded $0.00 16 1.00 14 2.00 12 3.00 10 4.00 8 5.00 6 6.00 4 Market Demand versus Individual Demand  The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price.  Suppose Helen and Ken are the only two buyers in the Latte market.(Q = quantity demanded) Demand Curve Shifters  The demand curve shows how price affects quantity demanded, other things being equal.  These “other things” are non-price determinants of demand (i.e., things that determine buyers’ demand for a good, other than the good’s price).  Changes in them shift the D curve… Demand curve shifters: Increase in # of buyers increases quantity demanded at each price, shifts D curve to the right. Demand Curve Shifters: Income  Demand for a normal good is positively related to inco
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