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ch 03 demand and supply.docx

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Department
Economics
Course
ECON 102
Professor
Eva Lau
Semester
Fall

Description
03 – demandandsupply Chapter 3: Demand and Supply Markets and Prices  market - the place where you find people to sell goods or services  the market has 2 sides: buyers and sellers  competitive market: a market that has many buyers and many sellers, so no single buyer or seller can influence the price  money price: the number of dollars that must be given up in exchange for a good or service  relative price: ratio of one price to another (is an opportunity cost)  to calculate relative price, we divide the money price of a good by the money price of a ‘basket’ of goods (price index) Demand  demand: want it, can afford it, plan to buy it  quantity demanded: the amount that consumers plan to buy in a given time period at a particular price  not the same as the quantity actually bought  measured as an amount per unit time The Lawof Demand  defn: other things remaining the same, the higher the price of a good, the smaller the quantity demanded; and the lower the price of a good, the greater the quantity demanded  has a negative relationship (negative slop)  higher prices reduce the quantity demanded because of  substitution effect – when the price of a good rises, its relative price rises  consumers can choose to buy substitute goods  income effect – when prices rises, the price rises relative to income  higher prices and unchanged income causes consumers to be unable to buy as much Demand Curve and Demand Schedule  demand: the entire relationship between the price of a good and the quantity demanded of that good  quantity demanded is a point on the demand curve  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  a demand schedule lists the quantities demanded at each price when all the other influences on consumers’;; planned purchases remain the same Willingness and Ability to Pay  is a measure of marginal benefit  as the quantity available increases, the marginal benefit of each additional unit falls and the highest price that someone is willing and able to pay also falls A Change in Demand  when any factor that influences buying plans other than the price of the good  increase in demand: the demand curve shifts to the right  factors of demand – changes in ...  prices of related goods:  substitute goods – a good that can be used in place of another good  complementary good – a good that is used together with another good  expected future prices page 1 of 4 03 – demandandsupply  expected future income and credit  preferences  population – increase in population leads to an increase in demand (more people)  income  normal good – demand increases as income increases  inferior good – demand decreases as income increases A Change in the Quantity Demanded vs.aChangein Demand  change in quantity demanded: movement along the curve (caused by price changes)  change in demand: shift the curve (caused by factors of demand)  shift left: decrease; shift right: increase Supply  supply: has the resources and technology, can profit from producing it, plans to produce and sell it  quantity supplied: the amount that producers plan to sell during a given time period at a particular price  measured as an amount per time The Lawof Supply  defn: other things remaining the same, the higher the price of a good, the greater the quantity supplied; and the lower the price of a good, the smaller the quantity supplied  because marginal cost increases (PPF and opportunity cost)  positive relationship between quantity supplied and price; has a positive slope Supply Curve and Supply Schedule  supply: the entire relationship between the price of a good and the quantity supplied of it  quantity supplied is a point on the supply curve  supply curve: shows the relationship between the quantity supplied and the price of a good  the supply schedule lists the quantities supplied at each price when all the other influences on producers’ planned sales remain the same Minimum Supply Price  a curve that shows the lowest price at which someone is willing to sell  the lowest price is th
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