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Chapter 3.docx

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Department
Economics
Course
ECON 1000
Professor
Ying Kong
Semester
Summer

Description
Chapter 3 Supply and DemandMarket and PriceA market is any arrangement that enables buyers and sellers to get information and do business with each otherA competitive market is a market that has many buyers and many sellers so no single buyer or seller can influence the priceThe money price of a good is the amount of needed to buy itThe relative price of a goodthe ratio is its money price to the money price of the next best alternative goodis its opportunity costDemandWhen you demand something then you o want ito can afford it ando have made a definite plan to buy itWants are the unlimited desires or wishes people have for goods and serviceso Demand reflects a decision about which wants to satisfyThe 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 The Law of Demand The law of demand statesOther things remaining the same the higher the price of a good the smaller is quantity demanded and the lower the price of a good the larger is the quantity demandedThe law of demand results from o 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 o 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 Demand Curve and Demand ScheduleThe term demand refers to the entire relationship between the price of the good and quantity demanded of the goodA 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 sameA rise in the price other things remaining the same brings a decrease in the quantity demanded and a movement up along the demand curveA fall in the price other things remaining the same brings an increase in the quantity demanded and a movement down along the demand curve
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