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Chapter 3

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Department
Economics
Course
ECON 110
Professor
Ian James Cromb
Semester
Fall

Description
Demand, Supply, and Price Demand  It is the entire relationship between the quantity of a commodity that buyers want to purchase and the price of that commodity, other things being equal Quantity Demanded  Def: The amount of a good or service that consumers want to purchase during some period of time  It is a desired quantity  Based on price, competitor’s price, income, tastes, population, expectations of the future o It may also be different from what consumers actually purchase (+/-)  Refers to the flow of purchases  therefore expressed as a period of time Analysing effects of Variables  Stage One: Consider the influence of variables over time by holding all but one of them constant over a period of time o Let one variable change and study how it affects quantity demanded  Stage Two: Then combine the separate influences of the variables & see what happens when several things change at the same time Quantity Demanded and Price  In general, the lower the price, the higher demand  There is always more than one way to meet a need or desire o ie. If hungry you can eat “X” or you can eat “Y” o Therefore if the price of “X” goes up, you might buy less/none of it and eat “Y” Demand Schedules and the Demand Curve  Demand Schedule: A table showing the relationship between quantity demanded and the price of a commodity, other things being equal  Demand Curve: The graphical representation of the relationship between quantity demanded and the price of the commodity, other things being equal o Shows how much consumers are willing to buy at a certain price Shifts in the Demand Curve  Demand curves are drawn with the assumption that everything except the products own price is being held constantany change to other variables will change the demand curve  Can shift to desire more quantity at each price  more ppl want it  Can shift to desire lees quantity at each price  less people want it Consumers’ Income  If avg income rises, expected that people will desire more products o Goods which have more demand are called normal goods o Goods which have less demand are called inferior goods Prices of Other Goods  Substitutes in Consumption: Goods that can be used in place of another good to satisfy similar needs or desires o How it effects curve: If the prices of substitutes rises, it is likely that the demand for your product will increase  Complements in Consumption: Goods that tend to be consumed together o How it effects curve: An increase/decrease in either good will affect the demand for both products Tastes  Changes in taste may be long lasting (typewriters  laptops), or it could be a fad Population  If there is an increase in population with purchasing power, the demands for all products purchased by these new people will rise o An increase in pop increases demand Expectations for the Future  Is there something that will happen in the future that will affect prices? If so, it could cause demand for certain goods to go up before a price change. Movements along the Curve vs. Shifts of the Curve  Shift of curve: More of a product demanded for the same price o Change in Demand  Movements along the curve: Buy less of a product do to price increase o Change in Quantity Demanded Supply  The entire relationship between the quantity of some commodity that producers are wish to sell and the price of that commodity, other things being equal Quantity Supplied  Def: The amount of a commodity that producers want to sell during some time period  Influenced by: Product’s price, price of inputs, technology, government tax and subsidies, competitor price, and the number of suppliers Quantity Supplied and Price  In general, the higher the sale price of a good, the more the producers will supply Supply S
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