econ chapter 4 notes

econ chapter 4 notes - A market is a process of buyers and...

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A market is a process of buyers and sellers exchanging goods and services. Supermarkets, the NY stock exchange, drdug stores, roadside stands, garage sales, internet stores, and restaurants are all markets. Markets are numerous but geographically limited for a good such as cement because transportation costs are so high relative to the selling price. Markets for gold or automobiles are global. A market facilitates trade. Buyers determine the demand side of a market and sellers determine supply. Sellers include the firms, as well as the resource owners that sell their inputs to them. A competative market is one in which are number of buyers and sellers offer similar products and have very little market power--each buyer's and seller's effect is negligible. The law of demand says that the quantity of a good or service demanded varies inverseley (negatively) with its price--that, when the price of a good or service falls, demand increases and vice versa. Needs are those things you must have at any price. Unlike goods, there are no substitutes for needs. The law of demand says even so-called needs are more or less urgent depending on the circumstances (opportunity costs). The reason the negative/inverse relationship described by the law of demand is the substitution effect. The substitution effect describes the fact that, at higher prices, buyers increasingly substitute other goods for the good that now has a higher relative price. The individual demand schedule shows the relationship between the price of the good and the quanitity demanded. An individual demand curve is a graphical representation that shows the inverse relationship between price and quantity demanded. An individual demand curve can be created by connecting the different prices and corresponding quantities demanded. The market demand curve is the horizontal summation of individual demand curves--the sum of the quantities that each person demands at each price. Over the past 50 years, few goods have fallen in money price; most prices have risen in money terms. Money price is the price one pays in dollars and cents . Money price is sometimes called absolute or nominal price, expressed in dollars of current purchasing power.
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Some well-known examples of things that HAVE fallen in money price are DVD players, digital cameras, and cell phones. Economists are far more concerned with relative price than money price. Relative price is the price of one good relative to others.
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This note was uploaded on 03/18/2009 for the course ECON 200 taught by Professor None during the Spring '08 term at Pepperdine.

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econ chapter 4 notes - A market is a process of buyers and...

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