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Chapter 3

Chapter 3 - Demand, Supply, and Price.docx

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Department
Economics
Course
ECON 101
Professor
Robert Gateman
Semester
Winter

Description
3.1 Demand 09-29-2012 Quantity Demanded  Amount of a good or service that consumers want to purchase at a particular price  Flow of purchases per period of time  Qd is affected by: o Product’s own price o Consumer’s income o Prices of other products o Tastes o Population o Expectations about the future  Ceteris paribus – holding all other variables constant Quantity Demanded and Price  A basic economic hypothesis is that the price of a product and the quantity demanded are related negatively, other things being equal. That is, the lower the price, the higher the quantity demanded; the higher the price, the lower the quantity demanded.  Negative demand slope – Qd increases as price falls Demand Schedule and Demand Curves  Table showing the relationship between Qd and price  Graph – second method of showing this relationship  Demand curve – shows the quantity consumers would like to buy at each price  The demand curve represents the relationship between Qd and P, all other things being equal.  Demand – refers to the entire relationship between the Qd and of a product and Price Shifts in the Demand Curve o A demand curve is drawn with the assumption that everything except the product’s own price is held constant. A change in any of the variables previously held constant will shift the demand curve to a new position. o Shifts rightward – each price corresponds to a higher Qd o Shifts leftward – each price corresponds to a lower Qd Factors Affecting Demand o Consumers’ Income  Desire more of most products  Normal goods – Qd increases when income increases  Inferior goods – Qd decreases when income increases  Change in distribution of income o Prices of Other Goods  Substitutes – can be used in place of another good; rise in P of a substitute, rightward shift in demand  Complements – consumed/used jointly; decrease in P of complement, rightward shift in demand o Tastes  Change in taste in favor of the product shifts the demand curve to the right  Changes in customer’s perception of quality o Population  Increase in population with purchasing power = demand will rise o Expectations  Make the purchase before the price rises Movements along the Curve vs. Shifts of the Whole Curve o Change in demand  Change in ceteris paribus variable  Change of Qd at every price  Shift of demand curve o Change in Qd  Movement from one point on a demand curve to another point o A change in Qd can result from a shift in the demand curve with the price constant; from a movement along a given demand curve due to a change in the price; or from a combination of the two. 3.2 Supply 09-29-2012 Quantity Supplied  Amount of some good or service that producers want to sell  Amount producers are willing to offer for sale  Qs is affected by: o Product’s own price o Prices on inputs o Technology o Some government taxes or subsidies o Prices of other products o Number of suppliers Quantity Supplied and Price  A basic hypothesis of economics is that the price of the product and the Qs are related positively, other things being equal. That is, the higher the product’s own price, the more its producers will supply; the lower the price, the less its producers will supply. Supply Schedules and Supply Curves  Supply schedule – relationship between Qs of a product and the price  Supply curve – graphical representation of the supply schedule  The supply curve represents the relationship between Qs and price, other things being equal; its positive slope indicates that Qs increases when price increases.  Supply – entire relationship between the Qs of a product and the price of that product Shifts in the Supply Curve o A change in any of the variables (other than price) that affects the Qs will shift the supply curve to a new position.
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