Economics Self Study Notebook

Economics Self Study Notebook - Supply and Demand DEMAND...

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Supply and Demand 02/27/2014 ° DEMAND ° Demand: refers to the goods and services people are willing and able to buy during a certain period of time at various prices holding all other relevant factors constant Willingness to pay: as it states, the maximum you are willing to pay for a certain good at a certain time, which represents the highest value a consumer believes a good or service to be worth This will increase if you are in more need of that good at a specific time ° ° Law of Demand: Holding all other factors constant, as price increases, quantity demanded falls, and as price decreases, the quantity demanded rises ° ° The Demand Curve: a graphical representation of the law of demand Slopes down and to the right ° ° Demand schedule: a table indicating the quantity of a good or service that consumers are willing to pay at given prices Horizontal summation: adding together, horizontally, the quantity demanded by individuals in order to find the market demand ° ° Determinants of Demand Tastes and preferences o Consumers preferences for certain goods over others Income o Generally, as income rises, demand for goods rise as well Goods where income and demand move in same direction are normal goods
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Goods where income and demand move in opposite directions are known as inferior goods Price of related goods o Substitute goods : goods where if the price of one good rises, you will be more likely to purchase the other Ex: entertainment events such as concerts, movies, sporting events, etc o Complementary goods: goods that are typically consumed together, and therefore as the consumption of one good increases, the other does as well (ex: movies and popcorn), and the same works for a decrease Number of buyers o As more consumers enter the market for a good, the demand for that good will increase Expectations regarding future prices, income, and product availability o If a consumer expects a shortage of a good in the near future, there will often be a rush to buy as much of the good as possible This causes a shift of the demand curve to the right o An expected increase in income will often lead to an increase in demand since consumer will want to take advantage of the increase in money they will be experiencing soon Department and furniture stores take advantage of this by doing “by no, pay later” campaigns by allowing for no payments in the first year ° ° Changes in Demand vs Changes in Quantity Demanded Changes of demand occur when one of more of the determinants of demand change causing a shift in the demand curve Change in quantity demanded can only be caused by one thing: a change in the price of a good Supply: Supply: maximum amount of a good or service that a producer is willing and able to offer for sale at various prices, with all other factors being held constant
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Law of Supply: Holding all other relevant factors constant, as prices increases, the quantity supplied will increase, and as price decreases, the
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