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Chapter 3: Supply and Demand (Pt. 1)

by: Joana Marie

Chapter 3: Supply and Demand (Pt. 1) Econ 2106

Marketplace > Georgia State University > Microeconomics > Econ 2106 > Chapter 3 Supply and Demand Pt 1
Joana Marie
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September 6-8 Week 3
Professor Carycruz Bueno
Class Notes
Microeconomic, Economics, supply and demand





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This 4 page Class Notes was uploaded by Joana Marie on Saturday September 10, 2016. The Class Notes belongs to Econ 2106 at Georgia State University taught by Professor Carycruz Bueno in Fall 2016. Since its upload, it has received 58 views. For similar materials see PRINCIPLES OF MICROECONOMICS in Microeconomics at Georgia State University.


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Date Created: 09/10/16
Chapter 3: The Market at Work ­ Supply and Demand (Part 1) Elite Notetaker: Joana Marie Cruz September 6, 2016 Microeconomics / ECON 2106 ­­­ I. What are the Fundamentals of Markets? 1. Markets bring together trading partners to make order out of chaos. 2. Companies supply goods and services a.) Consumers obtain the goods and services that companies supply/provide 3. Market Economy ­ resources are allocated among firms with little or no government  interference 4. Producers earn a living by selling the products that consumers want a.) Consumers are motivated by self­interest and decide for themselves how spend  their money 5. Market Economies and their prices: a.) Exchange of goods and services happens through prices established in markets 1a.) Prices change according to the level of demand for the product and how  much is supplied *Ex. Disney reduces prices in the fall when demand is low, but raised prices near  Easter during Spring Break A. Competitive Markets: 1. Market ­ a collection of buyers and sellers of a particular product or  service a.) exist when goods and services are exchanged 2. Competitive Markets ­ a market in which there are so many buyers and sellers that  each has only a small impact on the market price and output; impact is almost  negligible 3. What makes it competitive? a.) Similar goods b.) Many participants B. Imperfect Markets: 1. Imperfect Markets ­ a market in which the buyer or seller has an  influence on the market a.) Ex. paying for the view of NYC from the Empire State building 2. Control is gained when sellers provide something different than their competitors a.) the more unusual, the more control a market has 1a.) ‘seller has control’ = imperfect 3. Monopoly ­ exists when a single company supplies the entire market for a particular  good or service  a.) Ex. Comcast II. What Determines Demand? 1. Demand exists when an individual or a group wants something badly enough to  pay or trade for it. 2. Quantity Demanded ­ the amount of a good or service purchased at the current  price 3. Law of Demand ­ an inverse relationship which states that as prices increase,  quantity decreases and as prices decrease, quantity increases A. The Demand Curve: 1. Demand Schedule ­ a table that shows the relationship between the price  of a good and the quantity demanded 2. Example: Price of Tilapia (per pound) Pounds of Tilapia Demanded (per month) $19.00 0 $17.00 1 $15.00 2 3. Demand Curve ­ a graph of the relationship between the prices in the demand  schedule and the quantity demanded at those prices a.) you need to use your demand schedule to form a demand curve b.) a demand ‘curve’ is often drawn as a downsloping line B. Market Demand: 1. Market Demand ­ the sum of all the individual quantities demanded by  each buyer in a market at each price 2. Example: Price of Tilapia Steven’s Demand Danielle’s Demand Combined Market (per pound) (per month) (per month) Demand $19.00 0 0 0 $17.00 0 1 1 $15.00 1 2 3 $13.00 1 3 4 3. Only a change in price can cause a movement along a demand curve C. Shifts in the Demand Curve: 1. Price does not cause a shift in the demand curve (1) Changes in Income: 1. Purchasing Power ­ how much you can afford 2.  An increase in income causes a consumer to purchase more of  what he/she desires 3. 2 Types of Goods: a.) normal goods ­ purchased when income goes up b.) inferior goods ­ purchased out of necessity rather than choice 1b.) Ex. Spam, used cars (2) The Price of Related Goods: 1. Complements and substitutes directly influence the demands for other  goods 2. Complements ­ two goods that are used together a.) Ex. Peanut Butter and Jelly 3. Substitutes ­ two goods that are used in place of each other a.) Ex. Coke and Pepsi 4. Chart: Related Goods Price of Good X Demand of Good X Demand of Good Y Complements Increases Decreases Decreases Complements Decreases Increases Increases Substitutes Increases Decreases Increases Substitutes Decreases Increases Decreases (3) Changes Tastes and Preferences: 1. While something is popular, demand increases a.) when it falls out of favor, demand often returns back to its former level of  demand 2. Ex. You hear that bananas reduce blood pressure, so you are more inclined to  purchase bananas, which leads to an increase in demand (4) Expectations Regarding the Future Price: 1. If we expect the price of an item to be higher tomorrow, we are more  inclined to purchase that item today than tomorrow (vice versa) (5) The Number of Buyers: 1. Market demand increases if more individuals enter the market 2. Demographic changes in societies shifts demand 3. Countries with different aging populations have different demands a.) Ex. Areas with higher birth rates are going to have a higher demand for baby necessities as opposed to areas with lower birth rates (Ex. Italy)


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