Microeconomics Ch. 3 textbook notes
Microeconomics Ch. 3 textbook notes Econ 201
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This 3 page Class Notes was uploaded by Kelsey Voelker on Friday September 16, 2016. The Class Notes belongs to Econ 201 at Towson University taught by Professor Baejter in Fall 2016. Since its upload, it has received 7 views. For similar materials see Microeconomics in Economics at Towson University.
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Date Created: 09/16/16
Microeconomics 9/12/16 Chapter 3 notes Textbook Chapter 3: Demand, Supply, and the Market Process Consumer choice and the law of demand The law of Demand: there Is and inverse (or negative) relationship between the price of a good or service and the quantity of it that consumers are willing to purchase. Substitutes: goods that perform similar functions The market Demand Schedule Demand Schedule: a table listing the various quantities of something consumers are willing to purchase at different prices Consumer Surplus The difference between the maximum amount consumers would be willing to pay, and the amount they actually pay for a good On graph: the area below the demand curve, but above the actual price paid Changes in Demand versus Changes in Quantity Demanded The purpose of the demand curve is to show what effect a price change will have on the quantity demanded (or purchased) of a good. Change in quantity demanded a change in the quantity of a good purchased in response solely to a price change ( a movement along a demand curve from one point to another) Change in demand a shift in the demand curve Factors that cause a change in demand o 1. Changes in consumer income o 2. Changes in the number of consumers in the market o 3. Changes in the price of a related good o 4. Changes in expectations o 5. Demographic changes o 6. Changes in consumer tastes and preferences Producer choice and the Law of Supply Producers convert resources into goods and services by doing the following: o Organizing productive inputs and resources, like land, labor, capital, natural resources, and intermediate goods; o Transforming and combining these inputs into goods and services o Selling the final products to consumers The sum of the producer’s cost of each resource used to produce a good will equal the opportunity cost of production The Role of Profits and Losses Firms earn a profit when the revenues from the goods and services that they supply exceed the opportunity cost of the resources used to make them. Losses occur when the revenue derived from sales is insufficient to cover the opportunity cost of the resources used to produce a good or service Market Supply Schedule Law of Supply: there is a direct (or positive) relationship between the price of a good or service and the amount of it that suppliers are willing to produce. This means that the price and the quantity producers wish to supply move in the same direction. As the price increases, producers will supply more-and as the price decreases they will supply less. Producer Surplus Producer Surplus: the difference between the amount a supplier actually receives (based on the market price) and the minimum price required to induce the supplier to produce the give units (their marginal cost). Changes in supply versus changes in quantity supplied Factors: o Changes in resource prices o Changes in technology o Elements of nature and political disruptions o Changes in taxes How market prices are determined: demand and supply interact Market: not a physical location but an abstract concept that encompasses the forces generated by the decisions of buyers and sellers Equilibrium: a state in which the conflicting forces of demand and supply are in balance. o when a market is in equilibrium, the decisions of consumers and producers are brought into harmony with on another, and the quantity demanded will equal the quantity supplied. Efficiency and Market Equilibrium economic efficiency: when a market reaches equilibrium, all the gains from trade have been fully realized Invisible Hand Principle Market prices coordinate the actions of self-interested individuals and direct them toward activities that promote the general welfare Competition and Property Rights The efficiency of market organization is, in fact, dependent upon these two things: o 1. Competitive markets o well-defined and enforced private-property rights o
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