ECON202 - Chapter 3

ECON202 - Chapter 3 - ECON202 Book Notes Chapter 3 1)...

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ECON202 Book Notes Chapter 3 1) Supply and Demand a) Markets i) A market is a group of buyers and sellers with the potential to trade with eachother ii) How large is a market (1) Aggregation (a) The process of combining distinct things into a single whole (2) In economics, markets can be defined broadly or narrowly, depending on our purpose b) Product and resource Markets i) Circular flow (1) A simple model that shows how goods, resources, and dollar payments flow between households and firms ii) Product market (1) Markets in which firms sell goods and services to households iii) Resource market (1) Markets in which households that own resources sell them to firms c) Competition in markets i) Imperfectly competitive market (1) A market in which a single buyer or seller has the power to influence the price of the product (2) In imperfectly competitive markets, individual buyers or sellers can influence the price of the product ii) Perfectly competitive market Page 1 of 10
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ECON202 Book Notes Chapter 3 (1) A market in which no buyer or seller has the power to influence the price (2) In perfectly competitive markets (or just competitive markets), each buyer and seller takes the market price as a given d) Using supply and demand i) The supply and demand model is designed to explain how prices are determined in perfectly competitive markets ii) Demand (1) Need or desire in order to be happy (2) Quantity demanded (a) The amount of a good that all buyers in a market would choose to buy during a period of time, given their constraint (b) The quantity demanded of a good or service is the number of units that all buyers in a market would choose to buy over a given time period, given the constraints that they face (c) It is a choice (i) Decision made after opportunity cost weighed out (d) It is hypothetical (i) Ability (e) It depends on price e) Law of Demand i) As the price of a good increases, the quantity demanded decreases ii) The law of demand states that when the price of a good rises and everything else remains the same, the quantity of the good demanded will fall Page 2 of 10
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ECON202 Book Notes Chapter 3 iii) Ceteris parlbus (1) Latin for “all else remaining the same” f) The demand schedule and the demand curve i) Demand schedule (1) A list showing the quantities of a good that consumers would choose to purchase at different prices, with all other variables held constant ii) Demand curve
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ECON202 - Chapter 3 - ECON202 Book Notes Chapter 3 1)...

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