PSY 105 Chapter Notes - Chapter 4: Frozen Yogurt, Ice Cream, Demand Curve

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25 Apr 2012
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Chapter 4 – The Market Forces of Supply and Demand
MARKETS AND COMPETITION
What is Competition? -70
Market: group of buyers and sellers of a particular good or service
Buyers determine demand ; sellers determine supply
Competitive market: many buyers and sellers neither has effect on market price
Perfectly competitive: higest form of competition; two characteristics [1] all goods
offered are exactly the same [2] numerous buyers and sellers so neither has
influence on market price price takers
DEMAND
The Demand Curve: The Relationship between Price and Quantity Demanded
Quantity demanded: amount of good that buyers are willing and bale to buy
Negatively related to price law of demand price rises QD falls
Table – demand schedule ; graph -> demand curve
Market demand curve sum of all the individual demands for a particular good
or service (see page 73 for example)
Income
Normal good: demand of good falls when income falls ie. Ice cream
Inferior good: demand of good rises when income falls ie. Bus rides
Wealth effect: the impact of changes in wealth on both the amount and
composition of goods that individuals consume
Prices of related goods
Substitutes: price of one good reduces the demand for another good ie. Ice cream
and frozen yogurt
Complements: goods that are used together ; fall in price of one good raises the
DEMAND in price of another good ie. Ice cream and hot fudge
Other determinants of demand
tastes
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