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2 - micro review

2 - micro review - Review of Microeconomics A Buyers side...

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Review of Microeconomics A. Buyers’ side of Market: Demand 1. Definition- (behavior of buyers) the ability and willingness to purchase a good or service at various prices ; PRICE DOES NOT DETERMINE DEMAND price is irrelevant 2. *NOT TO BE CONFUSED WITH QUANTITY DEMANDED * a. quantity demanded - the amount of a good or service that people are willing and able to buy at a specific price relationship between price and amount demanded b. The determinant of Quantity Demanded Price of Good (-) inverse relationship - as the price goes down, people buy more i. Link with reservation price - on the buyers’ side of the market, maximum price willing and able to pay 3. Determinants of Demand (all else constant) a. Income - affects ability to buy (willingness to buy); the nature of the good matters: i. Normal good (+) 1. ex: nice cars ii. Inferior good (-) 1. ex: Ramen Noodles, Spam, rental housing b. Price of Related Goods (assume price increase…if decrease, reverse) i. Substitutes : increase price (+) - P A D B 1. ex: buy one, get one free deals- change purchase ii. Compliments : increase price (-) - P A D B 1. ex: bread and butter c. Tastes and Preferences d. Expectations - what you think will happen in the future influences behavior now i. Future Price (+) – affects demand, not quantity demanded ii. Future Income (assume expected increase)- normal good (+), inferior good (-) e. Number of Buyers (+) i. Ex: increase in population 4. Demand- Graphically a. Change in Quantity Demanded : Movement along curve i. Demand always stays the same, quantity demanded changes from point to point along the demand curve 2
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b. Change in Demand : Shift entire curve i. Increase in demand- shift
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