CHAPTER 3 - CHAPTER 3 DEMAND& SUPPLY Price Determination...

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Unformatted text preview: CHAPTER 3 DEMAND & SUPPLY Price Determination in a Competitive Market DEMAND Demand • Demand: includes both – the willingness and – ability to purchase a product • Demand: a schedule linking the price of a good to a quantity demanded at this price Demand • Demand curve = graphical representation of this relationship Demand • Law of demand = the inverse relationship between price & quantity demanded • 2 explanations: – Income effect : A lower price means I can buy more units of a product out of a given amount of income – Substitution effect : A lower price means that a product becomes more attractive relative to other goods serving a similar purpose Demand • Other Determinants of Demand: – Income • Influences the ability to purchase • May also influence the willingness to purchase – Normal goods vs. Inferior goods – Tastes & Preferences – Expectations (e.g. about the price in the future) – Price of related goods • Substitutes vs. Complements – Number of consumers in the market Demand • Changes in the quantity demanded versus Changes in demand • Price changes change in quantity demanded (movement along demand curve) • Changes in other determinants change in demand (shift of the whole curve) Demand • Changes in the quantity demanded versus Changes in demand SUPPLY Supply...
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This note was uploaded on 04/29/2008 for the course ECON 101 taught by Professor Fels during the Spring '08 term at Wisconsin Milwaukee.

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CHAPTER 3 - CHAPTER 3 DEMAND& SUPPLY Price Determination...

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