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BYU-I - ECON 150 - Class Notes - Week 3

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BYU-I - ECON 150 - Class Notes - Week 3

School: Brigham Young University - Idaho
Department: Economics
Course: ECON Principles & Problems Micro
Professor: Rick Hirschi
Term: Spring 2016
Tags: Math, supply, demand, market, Economics, price, Accounting, business, and Entrepreneurship
Name: Economics 150: Chapter 3
Description: These are the notes for Chapter 3 from our textbook. It covers Supply, Demand, Equilibrium Price and Equilibrium Quantity, Government Ceiling and Floor prices.
Uploaded: 04/30/2016
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background image Chapter 3 Notes Lesson 1: Markets Markets bring together buyers (demanders) and sellers (suppliers). This chapter mainly focusses on the markets in which large numbers of
independently acting buyers and sellers come together to buy and sell 
standardized products.
Food market, stock market, and the market for foreign 
currencies. They all involve demand, supply, price, and 
quantity. 
The price is “discovered” through the interacting decisions of buyers 
and sellers.
Lesson 2: Demand Demand: A schedule or a curve that shows the carious amounts of a 
product that consumers are willing and able to purchase at each of a 
series of possible prices during a specified period of time. It shows the 
quantities of a product that can be purchased at different possible 
prices; other things equal.
Demand Schedule: a table of numbers showing the amounts of a 
good or service buyer are willing to purchase.
“Willing and able,” are very important words to describe demand, 
because even if you are willing to pay for something you must be able 
to back it up with actual money, or it will not be reflected in that 
market.
Demand is simply a statement of a buyer’s intentions with respect to 
the purchase of the product.
Unless a specific time period is stated, we don’t know whether the 
demand for the product is large or small.
Law of Demand:  A fundamental characteristic, other things equal, as
the price falls, the quantity demanded rises, and as price rises, the 
quantity demanded falls. Simply put, when the price goes down, you’re
willing to buy more, and when the price goes up, you are willing to buy 
less.
There is a negative (or inverse) relationship between price and
quantity demanded.
The other-things-equal assumption is important because of relative 
price
. The purchase of Nike shoes does not depend on their price 
alone, but it depends on the prices of substitute brands such as 
Reebok and Adidas. If Nike’s price goes up, but the other two stay 
constant, then Nike will sell less shoes.
background image Diminishing Marginal Utility: as a person increases consumption of 
a product, while keeping consumption of other products constant, 
there is a decline in the marginal utility that person derives from 
consuming each additional unit of that product. Such as the second Big
Mac will yield less satisfaction than the first.
Income Effect: a change in the quantity demanded of a product that 
results from the change in real income caused by a change in the 
product’s price. A lower price increases the purchasing power, enabling
them to purchase more of that product.
Substitution Effect: At a lower price, buyers have the incentive to 
substitute what is now a less expensive product for other products that
are now relatively more expensive. The product whose price has now 
fallen is now a better deal relative to the other products.
Demand Curve: Possible price of a product (Y Axis) is associated with 
a quantity demanded (X Axis). The downward slope reflects the law of 
demand.
By adding the quantities demanded by all consumers at each 
of the various possible prices, we can get from an individual 
demand to a market demand.
To find a market demand for millions of buyers: assume that all buyers 
are willing and able to buy the same AMOUNT at each possible prices, 
then multiply those amounts by the number of buyers.
Determinants of Demand: Factors other than price that determine 
the quantities demanded of a good or service. Assumed to be 
constant; they are the “other things equal.”
Changes in Demand: Tastes, Number of Buyers, Income, Prices of 
Related Goods, and Consumer Expectations.
Normal Goods: A good or service whose consumption increases when
income increases and falls when income decreases, and the price 
remains the same. Products whose demand varies DIRECTLY with 
money income. Ex: everyday items and foods.
Inferior Goods: A good for service whose consumption declines as 
income rises, prices held constant. Goods whose demand varies 
INVERSLY with money income. Ex: used items and cars, younger 
models of goods get switched for upgraded models.
Substitute Good: A good that can be used in place of another. Ex: 
Pepsi instead of Coke.
Complementary Good: A good that is used together with another 
good. Ex: Snow boots and Ski’s. 
Change in Demand: A shift of the demand curve to the right 
(increase of demand) or to the left (decrease of demand). Refer to the 
Determinants of Demand.

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School: Brigham Young University - Idaho
Department: Economics
Course: ECON Principles & Problems Micro
Professor: Rick Hirschi
Term: Spring 2016
Tags: Math, supply, demand, market, Economics, price, Accounting, business, and Entrepreneurship
Name: Economics 150: Chapter 3
Description: These are the notes for Chapter 3 from our textbook. It covers Supply, Demand, Equilibrium Price and Equilibrium Quantity, Government Ceiling and Floor prices.
Uploaded: 04/30/2016
4 Pages 12 Views 9 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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