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Chapter 3

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Department
Philosophy
Course
PHIL 105
Professor
Colin Stewart
Semester
Fall

Description
Econ 105 Principles of Macroeconomics Chapter 3 Fall 2013 th Reading: Chapter 3 Macroeconomics/Ragan & Lipsey - 14 edition Chapter 3: Demand, Supply and Price Objective: • What determines “quantity demanded,” the amount of some product that consumers want to purchase • What determines “quantity supplied,” the amount of some product that producers want to sell. • To distinguish between a shift in the D or S curve and a movement along the D or S curve • The forces that drive market price to equilibrium, and how equilibrium price is affected by changes in demand and supply 1.Demand What is “Quantity Demanded”? The total amount that consumers ____________________ to purchase at certain prices in some ____________________ is called the quantity demanded of a product. The quantity demanded (Qd) is a _________________, as opposed to a stock. Quantity bought (or exchanged) refers to _____________ purchases. A flow variable is measured over an _____________ of time. Therefore a flow would be measured per unit of time (say a year). On the other hand, a stock variable is measured at one _____________ time, and represents a quantity existing at that point in time which may have accumulated in the past. Q: What would be examples of flow and stock variables? A: 1 / 9 Econ 105 Principles of Macroeconomics Chapter 3 Fall 2013 Quantity Demanded and Price A basic hypothesis is that — ceteris paribus — the price of a product and the quantity demanded are ____________________ related. Q: In the hypothesis, why “ceter is paribus” or “other things being equal” must be stated? A: To restrict considerations of othe r influential factors to Qd, except its own price. Q: How do you express your de mand schedule for a certain good or service in the diagram below? Price Q Q: Why is the demand cu rve downward sloping? A: Q: What is meant by each ver tical distance at each unit consumed under the demand curve? A: Additional benefits gained as a result of consuming the next unit of a good 2 / 9 Econ 105 Principles of Macroeconomics Chapter 3 Fall 2013 Movement along the curve vs. Shifts of the demand curve Change in quantity demanded : a _________________ from one point to another point on a demand curve, either on the same demand curve or on a new one. Change in demand : a change in the quantity demanded at every ____________ -- a _____________ of the entire curve. Price ?? DLow D D High Q A ____________________ (____________________) shift indicates an increase (decrease) in demand. Q: What factors would shift the demand curve, with other things being equal? A: Future Price 3 / 9 Econ 105 Principles of Macroeconomics Chapter 3 Fall 2013 2.Supply What is “Quantity Supplied”? The amount of a product that firms ____________________ to sell at certain price in some time period is called the quantity supplied of that product. The quantity supplied (Qs) is a ____________________ as opposed to a stock. Quantity Supplied and Price Another basic economic hypothesis is that -- ceteris paribus -- the price of the product and the quantity supplied are ____________________ related. Q: How do you express your su pply schedule for a certain good or service in the diagram below? Price Q Q: Why is the supply curve upward sloping? A: 4 / 9 Econ 105 Principles of Macroeconomics Chapter 3 Fall 2013 Q: What is meant by a vertical distance at each unit supplied under the supply curve? A: M
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