ECON 5311 chapter 3 and 4 - LECTURE SESSION TWO The lower...

This preview shows page 1 - 2 out of 5 pages.

LECTURE - SESSION TWO The lower the price, the smaller the quantity supplied; the higher the price, the greater the quantity supplied. This is moving up and down the same curve without the curve shifting. See graph. The Parable of the Talents ( Matthew 25:14-29 ) illustrates that Jesus favored enterprise in that the master chastised the servant who did not put his talents to work in search of profit. There are two messages: first, that seeking profit is a virtue; and secondly, that we are all responsible to put God's gifts to work if we are good stewards. Chapter three talks about the dynamics of the market and chapter four talks about the mechanism whereby firms and households exchange resources, goods, and services in the resource and product markets. CHAPTER 3 - THE MARKET SYSTEM DEMAND - A relationship showing the quantities of a good that consumers are willing and able to buy at various prices during a given period of time, other things constant. The quantity demanded at each price can be put into a schedule or shown graphically as a demand curve. The whole curve shows demand at a period in time. LAW OF DEMAND - The quantity of a good demanded is inversely related to its price, other things constant. Thus, the higher the price, the smaller the quantity demanded; the lower the price, the greater the quantity demanded. It is just common sense that more people will demand a product at lower prices than will demand the same product at higher prices. It is the reason that stores conduct sales! SUBSTITUTION EFFECT - When the price of a good falls, consumers will substitute it for other goods, which are now relatively more expensive. For example, if the price of steak falls, you tend to eat more steak until the price goes back up. Less hamburger will be bought. Hamburger and steak are substitute goods. REAL INCOME - Income measured in terms of the goods and services it can buy. Income that is adjusted for inflation. In economics, "real" always means adjusted for inflation. If you got a 4% raise last year and the cost of living (inflation) increased by 3%, your real raise was 1%! INCOME EFFECT - A fall in the price of a good increases consumers' real income, making them more able to purchase all goods, so the quantity demanded increases. For example, the price reduction in steak increases the purchasing power of your income, which increases your ability to buy steak. You may not want steak everyday, but your income would allow you to have it everyday. If you are already eating steak every day, you may decide to use the added purchasing power resulting from the reduction in the price of steak to go to the movies or to buy something else. DEMAND CURVE - A curve showing the quantities of a commodity demanded at various possible prices, other things constant. It is very important that you study the difference between quantity demanded and demand. Each point of the curve shows the quantity demanded at each price while the whole curve shows demand at a period in time. A change in demand moves the whole curve. See graph.
Image of page 1

Subscribe to view the full document.

Image of page 2

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern