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Unformatted text preview: Chapter 4 • Buyer's side of market • Demand • The ability and willingness to purchase a good or a service at various prices • Without both willingness and ability it is just considered wanting not demand • Quantity Demanded • The amount of a good or service that people are willing and able to purchase at a specific price • Determinant of Quantity Demanded • Price of good at a given moment in time • Link with reservation price • Maximum price one is willing and able to pay per unit of good • Q D = f(P t ) • P t = independent variable • Direction of relationship = inverse relationship • Determinant of Demand • Income • Normal good (+) • If our income increases, (everything else held constant) we would buy more of these items • Direct relationship • Inferior good (-) • If our income increases, (everything else held constant) we would buy less of these items • Inverse relationship • Price of related goods • Substitutes: Increase price (+) • Goods at are consumed in rivalry; characterized by the word "or" • If the price of good "A" increases (everything else held constant), the demand for good "B" also increases • Increase in P A--> increase in D B--> increase in P B • Complements: Increase price (-) •...
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- Spring '07
- Supply And Demand