Chapter 3 9/9-9/16
Chapter 3 9/9-9/16 Eco2013
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This 3 page Class Notes was uploaded by Danielle Sturgeon on Thursday September 24, 2015. The Class Notes belongs to Eco2013 at Florida State University taught by Calhoun in Summer 2015. Since its upload, it has received 51 views. For similar materials see Macroeconomics in Business at Florida State University.
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Date Created: 09/24/15
Chapter 3 Demand Supply and the Market Process 1 Consumer Choice and the Law of Demand a As the price of a good increases we have to give up more of other goods if we want to buy it Basically as the price of a good rises its opportunity cost increases b The Law of Demand There is an inverse relationship between the price of a good and the quantity of it that buyers are willing to purchase As the price of a good increases consumers will wish to purchase less of it As the price decreases consumers will wish to purchase more of it Substitutes products that serve similar purposes An increase in the price of one will cause an increase in demand for the other Demand Schedule a table listing the various quantities of something consumers are willing to purchase at different prices 2 Changes in Demand vs Changes in Quantity Demanded a Other Variables besides price determine what you buy When price changes quantity demanded changes but demand does not change 1 This shifts to another point on the curve When something else besides price changes demand changes 1 This is movement of the entire curve b Another way to think about the difference between demand and quantity demanded Why is the consumer buying more or less 1 If price is the reason then quantity demanded changes move along the demand curve 2 If any variable besides price is the reason then demand changes shift the demand curve c Why would there be a change in demand Changes in consumer income 1 Consumers can purchase more or less goods if their income goes up or down Changes in the number of consumers in the market 1 If people are only seasonally in a location there is much less demand after everyone leaves Changes in the price of a related good 1 Related goods could be substitutes if their price goes up or down it will in uence how much of the other product consumers will or will not buy iv Changes in expectations 1 If there is a natural disaster etc expected changes in demand will result v Demographic changes 1 If the demographic of a population changes there will be demands for different types of products vi Changes in consumer tastes and preferences 1 When people change and acquire new information their wants and needs change 3 Producer Choice and the Law of Supply a Producers convert resources into goods and services by doing the following i Organizing productive inputs and resources like land labor capital natural resources and intermediate goods ii Transforming and combining these inputs into goods and services iii Selling the nal product to consumers b The Law of Supply i The positive relationship between price and quantity supplied when price risesfalls quantity supplied risesfalls c Opportunity cost of production i The value of the production of other goods sacri ced as the result of producing the good d Things that cause changes in supply when anything other than price changes i Changes in resource prices ii Changes in technology iii Elements of nature and political disruptions iv Changes in taxes 4 How Market Prices are Determined Demand and Supply Interact a Market i An abstract concept encompassing the forces of supply and demand and the interaction of buyers and sellers with the potential for exchange to occur b Equilibrium i A state in which the con icting forces of supply and demand are in balance When a market is in equilibrium the decisions of consumers and producers are brought into harmony with one another and the quantity supplied will equal the quantity demanded 5 How Markets Respond to Changes in Demand and Supply a This is called supply and demand analysis b In a market economy when the demand for a good increases its price will rise which will i Motivate consumers to search for substitutes and cut back on additional purchases of the good ii Motivate producers to supply more of the good When the demand for a product declines the adjustment process sends buyers and sellers just the opposite signals Invisible Hand Principle i Market prices coordinate the actions of self interested individuals and direct them toward activities that promote the general welfare ii Adam Smith in The Wealth ofNations
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