econ104 ch03 Lecture Notes prelecture

econ104 ch03 Lecture Notes prelecture - CHAPTER 3 Demand...

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CHAPTER 3 Demand, Supply, and Market Equilibrium Pre-Lecture I. The Model (Supply and Demand) a. The market price (P* ) and market quantity (Q* ) determination i. Negotiations and agreements between buyers (consumers) and sellers (producers) – two conflicting market forces. b. Model assumptions i. Large numbers of independently acting consumers . ii. Large numbers of independently acting producers . iii. Standardized products. II. Demand (Market Demand) a. Definition – A schedule or curve that shows the various amounts of a product (Q d = quantity demanded) that consumers are willing and able to purchase at each of a series of possible prices (P ) during a specified period of time. b. Law of demand (Ceteris paribus , as P falls, the Q d rises; as P rises, the Q d falls – an inverse relationship). c. Income effect – a change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price . d. Substitution effect
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