Introduction to Economics Ch. 3-Supply and Demand
Introduction to Economics Ch. 3-Supply and Demand Eco 280
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This 6 page Class Notes was uploaded by Haley Morse on Wednesday September 14, 2016. The Class Notes belongs to Eco 280 at Northern Arizona University taught by Andrew Parkes in Fall 2016. Since its upload, it has received 28 views. For similar materials see Introduction to Economics in Economics at Northern Arizona University.
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Date Created: 09/14/16
Why is this important? It introduces basic supply and demand analysis Demand: Represents the choice making behavior of buyers Ceteris Paribus: All else remains the same What is the law of demand? An inverse relationship between the Price of a good and the quantity buyers are willing to purchase in a defined time period ceteris paribus (All else the same) What is a demand curve? A curve that shows the quantities of a good ir service that people are willing and able to buy at different prices Example: Point Price per Blue-ray Quantity demanded (Per year) A $20 4 B 15 6 C 10 10 D 5 16 Why do demand curves have a negative slope? As the price per unit of goods or services fall, buyers can afford to buy more units per period of time What is market demand? The summation of the individual demand schedules in a market ****KNOW THE DIFFERENCE BETWEEN “CHANGE IN THE QUANITY DEMANDED” AND A “CHANGE IN DEMAND”***** When prices changes what happens? The curve Does NOT shift and there is a “change in the quantity demanded When a variable other than price changes, what happens? The whole demand curve Shifts, states as “there is a change in demand” Changes in nonprice determinates can produce only a Shift in a demand curve and not a movement along the demand curve A shift in a demand curve is caused by a change in: Number of buyers in the market Tastes and preferences Income Expectations of buyers Prices of related goods What is a normal good? Any good for which there is a direct relationship between changes in income and its demand curve What does a direct relationship between price and quantity mean? The 2 variables move in the same direction What is an inferior good? And good for which there is an inverse relationship between changes in income and its demand curve What does an inverse relationship between price and quantity mean? It means that the 2 variables move in opposite direction What are substitute goods? Goods that “compete” with one another for consumer purchases What happens when the price increases for a good that has a substitute? The demand curve for the substitute good increases What happens when the price decreases for a good that has a substitute? The demand curve for the substitute good decreases What are complementary goods? Goods that are “Jointly consumed” with another good What happens when the price increases for a good that has a complement? The demand curve for the complementary good decreases What happens when the price decreases for a good that has a complement? The demand curve for the complementary good increases What happens when the price increases for a good that has a complement? The demand curve for the complementary good decreases What is supply? Supply represents the choice making behavior of sellers Determinants: what determines demand Law of demand: Movement along the curve What is the law of Supply? There is a direct relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus point Price per blu-ray Quantity supplied (thousands per year) A $20 50 B 15 45 C 10 35 D 5 20 Why do supply curves have a positive slope? Only at a higher price will it be profitable for sellers to incur the higher opportunity cost associated with supplying a larger quantity What is market supply? The horizontal summation of all the quantities supplied at various prices that might prevail in the market ******Know the difference between “A CHANGE IN THE QUANTITY SUPPLIED” and “A CHANGE IN SUPPLY”****** When price changes what happens? The curve does not shift and there is a “Change in the quantity supplied” When a variable other than price changes what happens? The whole curve shifts and there is a “Change in supply” Changes in nonprice determinants can produce only a shift in a supply curve and not a movement along the demand curve A shift in a supply curve is caused by a change in: Number of sellers in the market Technology Resource prices Taxes and subsidies Expectations of producers Prices of other goods and services the firm could produce What is a market? Any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged Where is the equilibrium price? At the price where the quantity demanded and the quantity supplied are equal What is the price system? A mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices P-P-PESTS: Supply wheat=Price of wheat, price of inputs, expectations, suppliers, technology, price expectations, weather expectations, price of other goods Surplus=pressure on the price to fall (Price typically goes down) Shortage=pressure on the price to fall (Go up) Price floor=keeps prices from going down Price ceiling=keeps prices from going up
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