Textbook Notes (369,072)
United States (206,189)
Economics (213)
01:220:102 (140)
Chapter 3

Chapter 3 Demand and Supply Outline Notes

2 Pages
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Department
Economics
Course Code
01:220:102
Professor
Erin Fairweather

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Demand Sunday,February17, 2013 9:58PM • Markets and Prices ○ CompetitiveMarket- marketthat has many buyers and many sellers, sono single buyer or sellercaninfluence the price ○ Money Price- price of anobject is the number of dollars that must be givenup inexchange for it ○ RelativePrice- ratioof one price to another • If you demand something, then you ○ Wantit, canafford it, and plan to buy it ○ Quantity Demanded- amountthat consumers plan to buy during a giventime period ata particular price  Not necessarilythe same as the quantity actually bought  Sometimes the quantity demanded exceeds the amount of goods available,sothe quantity bought is less thanthe quantity deman ded  Measuredas an amount per unit of time • Law ofDemand- other things remaining the same, the higher the price of a good, the smalleris the quantity demanded; and the lower the price of a good, the greateris the quantity demanded ○ Substitution Effect  When the price of a good rises,other things remaining the same,its relative price--its opportunity cost--rises  Although eachgood is unique, it has substitutes  As the opportunity costof 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  Facedwith a higher price and anunchanged income, people cannot afford to buy all the things they previously bought □ Theymust decrease the quantities demanded of at leastsome goods and services • Demand Curve and Demand Schedule ○ Demand Curve- shows the relationship between the quantity demanded of a good and its price when all other influences on consumers' plannedpurchases remain the same ○ Willingness andAbilityto Pay  Ameasure of marginal benefit • Changein Demand- occurs when any factor influences buying plans changes, other than the price of the good ○ Six main factors bring changes in demand:  The prices of related goods  Expectedfuture prices  Income  Expectedfuture income and credit  Population  Preferences ○ Price of RelatedGoods  Substitute- a goodthatcanbe used in place of another good  Complement- goodthat is usedin conjunction with another good ○ ExpectedFuture Prices  If expected future price of a good rises andif the good can be stored, the opportunity costof obtaining a good can be store d, the opportunity costof obtaining the good for future use is lower today than it will be in the future when people expect the price to be higher ○ Income  Normal Good- one for which demand increases as income increases  Inferior Good- one for which demand decreases as income increases ○ ExpectedFuture Income and Credit  When expected future income increases or credit becomes easierto get, demand for the good might increase now ○ Population  The la
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