Textbook Notes (367,844)
Canada (161,454)
Economics (818)
ECON 1050 (382)
Chapter 3

Chapter 3.docx

5 Pages
122 Views
Unlock Document

Department
Economics
Course
ECON 1050
Professor
Eveline Adomait
Semester
Fall

Description
Economics Chapter 3: Supply and Demand Market any arrangement that enables buyers and sellers to get information and to do business with each other -Has two sides: buyers and sellers -There are markets for goods, services, resources (computer programmers), and other manufactured inputs (computer chips) -Can be a physical place, groups of people spread around the world through e-commerce, or like most markets, unorganized collections of buyers and sellers -Some markets are simple, others are more complex -Markets determine prices through buyers and sellers -Flower market in Holland -Competitive market is a market that has many buyers and many sellers so no single buyer or seller can influence the price -Producers offer items at a high enough price to cover their opportunity costs, consumers respond to this by seeking lower priced alternatives -Money price of a good is the amount of money needed to buy it. -Relative price of a good—the ratio of its money price to the money price of the next best alternative good—is its opportunity cost. -To express relative price we use a ‘basket’ of all goods and services -To calculate divide money price of a good by price index, which results in the opportunity cost of goods in terms of how much of the basket we must give up to buy it -Demand and supply model determine relative price Demand -3 criteria 1) we want it 2) We can afford it 3) We plan to buy it -Wants are the unlimited desires or wishes people have for goods and services. -Demand reflects a decision about what wants to satisfy -The quantity demanded of a good or service is the amount that consumers plan to buy during a particular time period, and at a particular price. -Quantity demanded is not the same as quantity bought -time is important because you may demand a large unit over a long period of time -buyers; aka demanders Law of Demand States: Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded; and the lower the price of a good, the larger is the quantity demanded. -not by any particular percentage; just a directional prediction The law of demand results from:  Substitution effect: When the relative price (opportunity cost) of a good or service rises, people seek substitutes for it, so the quantity demanded of the good or service decreases. -Figuring out ways of replacing or economizing to replace the good you can no longer afford  Income effect: When the price of a good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded of the good or service decreases. -Can afford less of things than you could before -Faced with higher price and unchanged income people must decrease their demand for some goods and services -Quantity demanded decreases when price rises Demand Curve and Demand Schedule -Demand refers to the entire relationship between the price of the good and quantity demanded of the good. -not a quantity -Quantity Demanded is a point on the demand curve-the quantity demanded at a particular price -Demand curve shows the relationship between the quantity demanded of a good and its price when all other influences on consumers’ planned purchases remain the same. -Uses a graph Willingness and Ability to Pay -A demand curve is also a willingness-and-ability-to-pay curve. The smaller the quantity available, the higher is the price that someone is willing to pay for another unit. -Willingness to pay measures marginal benefit. -doesn’t have a one way relationship: x doesn’t cause Y A Change in Demand -When some influence on buying plans other than the price of the good changes, there is a change in demand for that good. -entire relationship changes -The quantity of the good that people plan to buy changes at each and every price, so there is a new demand curve. -When demand increases, the demand curve shifts rightward. -When demand decreases, the demand curve shifts leftward. Six main factors that change demand are 1. The prices of related goods -substitute is a good that can be used in place of another good. -ex. Coke and coffee -If price of coke goes up, demand for coffee may increase -Complement is a good that is used in conjunction with another good. -Gasoline and cars: when the price of a complement change the demand for the item may change -When the price of substitute for an energy bar rises or when the price of a complement of an energy bar falls, the demand for energy bars increases. 2. Expected future prices -If the price of a good is expected to rise in the future, current demand for the good increases and the demand curve shifts rightward as long as the good can be stored -Substituting with time; consumers retime their purchases 3. Income -When income increases; consumers buy more of most goods and the demand curve shifts rightward. -A normal good is one for which demand increases as income increases. Housing, transportation, food, travel -An inferior good is a good for which demand decreases as income increases. Purchased by low income people, when income rises they will stop buying these goods and move onto normal goods 4. Expected future income and credit -When income is expected to increase in the future or when credit is easy to obtain, the demand might increase now. 5. Population -The larger the population, the greater is the demand for all goods. 6. Preferences -People with the same income have different demands if they have different preferences. -People place different values on different goods and services -ex. On-going preference moving away from cigarettes due to growing health concerns A Change in the Quantity Demanded Versus a Change in Demand Movement Along the Demand Curve -Wh
More Less

Related notes for ECON 1050

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit