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Macroeconomics Chapter 3 Notes

by: Amy Chapman

Macroeconomics Chapter 3 Notes ECO 210

Marketplace > Greenville Technical College > Macro Economics > ECO 210 > Macroeconomics Chapter 3 Notes
Amy Chapman

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About this Document

These cover Supply and Demand
Prof. Lance Vischer
Class Notes




Popular in Macroeconomics

Popular in Macro Economics

This 4 page Class Notes was uploaded by Amy Chapman on Wednesday September 14, 2016. The Class Notes belongs to ECO 210 at Greenville Technical College taught by Prof. Lance Vischer in Fall 2016. Since its upload, it has received 18 views. For similar materials see Macroeconomics in Macro Economics at Greenville Technical College.


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Date Created: 09/14/16 or text 803­978­3798 Supply and Demand Chapter 3 DEMAND Demand schedule: A table showing the relationship between the __price__ of a product and the quantity of the product demanded. Quantity demanded: The amount of a good or service that a consumer is __willing and able __to purchase at a given price. Demand curve: A __curve__ that shows the relationship between the price of a product and the quantity of the product demanded. Market demand: The demand by __all__ the consumers of a given good or service. “demand” is market demand Sum the quantities, not the prices to find market demand. Demand Schedule and Demand Curve Pg.71 Figure 3-1 3.1 Learning Objective Law of Demand Inversely related Law of demand: The rule that, holding everything else constant, when the price of a product __falls__, the quantity demanded of the product will __increase__, and when the price of a product rises, the quantity demanded of the product will __decrease__ Substitution effect: The change in the quantity demanded of a good that results from a change in price, making the good more or less __expensive__ relative to other goods that are substitutes. Income effect: The change in the quantity demanded of a good that results from the effect of a change in the good’s price on consumers’ __purchasing power__. Ceteris paribus (“all else equal”): The requirement that when analyzing the relationship between two variables—such as price and quantity demanded—other variables must be held __constant__. A shift of a demand curve is an increase or decrease __in demand__. A movement along a demand curve is an increase or decrease in the __quantity demanded__. Quantity can change without a change in demand. If demand changes, quantity demanded must also change. When price changes quantity demanded changes. If something other than price changes, that is a change in demand A Change in Demand versus a Change in Quantity Demanded Figure 3-3 3.1 Learning Objective Pg. 77 What causes a change in Quantity Demanded? 1. Change in price 2. Change in demand Shifting the Demand Curve Figure 3-2 Pg. 72 Many variables other than price can influence __market__ demand. Variables that change Demand (Shift Demand) 1. Income Normal good: A good for which the demand __increases__ as income rises and decreases as income falls. Inferior good: A good for which the demand __increases__ as income falls and decreases as income rises. Ex. Goodwill clothing, generic brands 2. Price of related goods Substitutes: Goods and services that can be used for the __same purpose__. Ex. Lysol vs. Febreze, Tide vs Downey Complements: Goods and services that are used __together__. Ex. Toothpaste & Toothbrushes, peanut butter & jelly, milk & cereal 3. Tastes Consumers can be influenced by an __advertising__ campaign for a product. 4. Population and demographics 5. Demographics The characteristics of a __population__ with respect to age, race, and gender. 6. ** Expected Future Prices ** Under both demand and supply Consumers choose not only which products to buy but also __when__ to buy them. Always looking at what happens with demand today to determine the expectation of the future. SUPPLY Supply Schedules and Supply Curves Quantity supplied: The amount of a good or service that a firm is willing and able to __supply__ at a given price. Supply schedule: A table that shows the relationship between the __price__ of a product and the quantity of the product __supplied__. Supply curve: A __curve__ that shows the relationship between the price of a product and the quantity of the product supplied. Cost: how much it cost to make the product Price: how much it sold for Supply Schedules and Supply Curves Pg.79 Figure 3.4 3.2 Learning Objective Law of supply: The rule that, holding everything else constant, increases in __price__ cause increases in the quantity supplied, and __decreases__ in price cause decreases in the quantity supplied. A Change in Supply versus a Change in Quantity Supplied Pg. 82 Figure 3.6 3.2 Learning Objective Pg. 79 Figure 3.5 3.2 Learning Objective Variables That Change Supply (Shift Supply) The following are the most important variables that __market__ supply: 1. Prices of __inputs (items needed to provide a thing) __ When the price of an input increases, supply decreases 2. Technological change: A __positive or negative__ change in the ability of a firm to produce a given level of output with a given quantity of inputs. Positive change means an increase in supply. Negative change means a decrease in supply. 3. Prices of __substitutes__ in production Criteria: 2 good must be produces by the same company Must be similar in their production method and the materials needed to produce 4. Number __firms__ the market More firms enter the market; supply increases. 5. Expected __future__ prices Higher price in the future means lower supply today Lower price in the future means high supply today 6. Taxes and __Subsidies (government pays you money to produce something) __ Reduce taxes, supply increases. Increase Subsidy, supply increases Increase taxes, supply decreases. Decrease Subsidy, supply decreases Market Outcomes Equilibrium Surplus Shortage Market Equilibrium: Putting Demand and Supply Together Pg. 82 Figure 3.7 3.3 Learning Objective Market equilibrium: A situation in which quantity demanded __equals__ quantity supplied. Where the demand curve crosses the supply curve determines market equilibrium How Markets Eliminate Surpluses and Shortages Pg. 83 Figure 3.8 3.3 Learning Objective Surplus: A situation in which the quantity supplied is __greater__ than the quantity demanded. Shortage: A situation in which the quantity demanded is __greater__ than the quantity supplied.


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