Supply and Demand
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This 2 page Class Notes was uploaded by Jordan Derby on Wednesday February 24, 2016. The Class Notes belongs to 12200 at Ithaca College taught by Elizabeth Kaletski in Spring 2016. Since its upload, it has received 16 views. For similar materials see Principles of Economics: Microeconomics in Economcs at Ithaca College.
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Date Created: 02/24/16
Chapter 4 Notes: The Market Forces of Supply and Demand Market- a group of buyers and sellers of a particular product Competitive Market- one with many buyers and sellers, each has negligible effect on price Perfectly Competitive: 1. All goods exactly the same 2. Buyers and sellers so numerous that no one can affect market price- each is a “price taker” Demand: Quantity Demand- of any good is the amount of the good that buyers are willing and able to purchase Law of Demand- the claim that the quantity demanded of a good falls when the price of the good rises, other things equal Truths Needed for Demand: 1. Want/Willingness to Consume something 2. Ability to Buy the Product Demand Schedule: Price Quantity Demanded Market Demand vs. Individual Demand: • The quantity demand in the market is the sum of the quantities demanded by all buyers a at each price • Need a large group of people Movement in Demand Curve 1. Price Demand Curve Shifts: 1. Income Increases- Right Shift 2. Increase in # of Buyers- Right Shift 3. Substitutes- two goods, where an increase in the price of once causes an increase in demand for the other 4. Complements- two goods, where if one increases its price there is a fall in demand for the other 5. Tastes- shifts it towards a good will increase demand for that good and shift its D curve to the right 6. Expectations- affect consumers’ buying decisions a. Ex. If people expect their incomes to rise, their demand for meals at expensive restaurants may increase now Normal Good- positive related to income • Increase in income causes increases in quantity demand at each price, shifts D curve to the right Inferior Good- negatively related to income • Increase in income shifts D curve to the left for inferior goods’ Supply: Quantity Supplied- the amount that sellers are willing and able to supply Law of Supply- the claim that the quantity supplied of a good rises when the process of the good rises, other things equal Supply Schedule- a table that shows the relationship between the price of a good and the quantity supplied Supply Curve Shifters: • Input Prices – wages, prices of raw material o A fall in input prices makes production more profitable at each output price, so firms supply a larger quantity at each price, and the S curve shifts to the right • Substitutes in Production- a good that can be produced in place of another • Complement in Production- a good that is produced along with another good • Number of Sellers- an increase in the number of sellers • Expectations- if the price of a good is likely to go up in the future, hold off until later Supply and Demand: Equilibrium- P has reached the level where quantity demand and quantity supply are equal Surplus- when quantity supplied is greater than quantity demanded Shortage – when quantity demanded is greater than quantity supplied Three Steps: 1. Decide whether the event shifts S curve, D curve, or both 2. Decide in which direction curve shifts 3. Use supply – demand diagram to see how the shift changes eq’m P and Q
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