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Department
Economics
Course
Economics 1021A/B
Professor
Michael Parkin
Semester
Fall

Description
Nicole Wallenburg Mr. Parkin Economics 12-04-23 Economics – Textbook Notes Markets and Prices Producers offer items for sale only if the price is high enough to cover their opportunity cost. And consumers respond to changing opportunity cost by seeking cheaper alternatives to expensive items Market Any arrangement that enables buyers and sellers to get information and to do business with each other Competitive Market A market that has many buyers and sellers, so no single buy or seller can influence the price Demand Substitution Effect When the price of a good rises, other things remaining the same, its relative price – its opportunity cost – rises. As the opportunity cost of a good rises, the incentive to economize on its use and switch to a substitute becomes stronger. Income Effect When a price rises, other things remaining the same, the price rises relative to income. Faced with a higher price and an unchanging income, people cannot afford to buy all the things they previously bought. The Law of Demand 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 greater is the quantity demanded Demand The entire relationship between the quantity demanded and the price (Quantity demanded at every price level) Quantity Demanded A point on a demand curve – the quantity demanded at a particular point A Change in Demand 1. The Price of Related Goods a. If the price of a substitute good increases, demand will increase b. If the price of a substitute good decreases, demand will decrease c. If the price of a complementary good increases, demand will decrease d. If the price of a complementary good decreases, demand will increase 2. Expected future prices Nicole Wallenburg Mr. Parkin Economics 12-04-23 a. If the price of a good is expected to rise in the future and is the good can be stored, the opportunity cost of obtaining the good for future use is lower today than it will be when the price has increased b. If the price of a good is expected to fall in the future, the opportunity cost of buying the good today is high relative to what it is expected to be in the future 3. Income a. When income increases, consumers buy more of most goods; and when income decreases, consumers buy
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