Textbook Notes (367,747)
United States (205,876)
Economics (213)
01:220:102 (140)
Chapter 3

Chapter 3 Notes

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Jack Skydel

Chapter 3 Notes • Competitive market:Amarket that has many buyers and many sellers, so no single buyer or seller can influence the price • Producers offer items for sale only if the price is high enough to cover their opportunity cost o Consumers respond to changing opportunity cost by seeking cheaper alternatives to expensive items • Money price: The number of dollars that must be given up in exchange for an object • Relative price: The ratio of one price to another o Arelative price is an opportunity cost • If you demand something, then you: 1. Want it 2. Can afford it 3. Plan to buy it • Wants: The unlimited desires or wishes that people have for goods and services • Quantity demanded: The amount that consumers plan to buy during a given time period at a particular price o Measured as an amount per unit of time • The law of demand states: o 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 the quantity demanded • Substitution effect:As the opportunity cost of a good rises, the incentive to switch to a substitute becomes stronger • Income effect:Ahigher price and an unchanged income forces people to decrease the quantities they had previously demanded of some goods and services • Demand: Refers to the entire relationship between the price of a good and the quantity demanded of that good • Quantity demanded: Refers to a point on a demand curve; the quantity demanded at a particular price • 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 • Demand schedule: Lists the quantities demanded at each price when all the other influences on consumers’ planned purchases remain the same • When the demand increases, the demand curve shifts rightward and the quantity demanded at each price is greater • Six main factors bring changes in demand: 1. The prices of related goods 2. Expected future prices 3. Income 4. Expected future income and credit 5. Population 6. Preferences • Substitute:Agood that can be used in place of another good • Complement: Agood that is used in conjunction with another good • When income increases, consumers buy more of most goods, and when income decreases, consumers buy less of most goods • Normal good: One for which demand increases as income increases • Inferior good: One for which demand decreases as income increases o Ex.As incomes increase, the demand for air travel (normal good) increases and the demand for long- distance bus trips (inferior good) decreases • The larger the population, the greater the demand for all goods and services, and the smaller the population, the smaller the demand for all goods and services o Also, the larger the proportion of the population in a given age group, the greater the demand for goods and services used by that age group • Adecrease in demand shifts the demand curve to
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