Chapter 3 - Notes: Chapter 3 03/06/2008 12:40:00 SUPPLY AND...

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Notes: Chapter 3 03/06/2008 12:40:00 SUPPLY AND DEMAND Section 1 The Demand Curve The number of people who want to buy a good depends on the price; the higher the price, the fewer people who want to buy the good; the lower the price, the more people who want to buy the good. Demand schedule – a table showing how much of a good or service consumers will want to buy at different prices Demand curve – a graphical representation of the demand schedule, another way of showing how much of a good r service consumers want to buy at any given price. o The vertical axis shows price and the horizontal axis shows quantity o Quantity demand – the actual amount consumers are willing to buy at some specific price. The demand curve and the demand schedule reflect the law of demand : as price rises, the quantity demand falls. Similarly, a decrease in price raises the quantity demand. As a result, the curve is downward sloping. Shifts of the Demand Curve A shift of the demand curve is a change in the quantity demanded at any given price, represented by the change of the original demand curve (D1) to a new position, denoted by a new demand curve (D2). o Rightward shift – an increase in demand: at any given price, consumers demand a larger quantity of the good than before. o Leftward shift – a decrease in demand: at any given price, consumers demand a smaller quantity of the good than before. o There are four principal factors that shift the demand curve for good: Changes in the prices of related goods
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Two goods are substitutes if a fall in the price of one good makes consumers less willing to buy the other good. A fall in the price of an alternative good induces some consumers to purchase it instead of the original good, shifting the demand for the original good to the left. Two goods are complements if a fall in the price of one good makes people more willing to buy the other good. When the price of a complement falls, the quantity of the original good demanded at any given price rises; so the demand curve shifts to the rights. Changes in income When individuals have more income, they are normally more likely to purchase a good at any given price. When a rise in income increases the demand for a good—the normal case—we say that the good is a normal good . When a rise in income decreases the demand for a good, it is an inferior good . Changes in tastes
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This note was uploaded on 06/30/2008 for the course ECON 1110 taught by Professor Wissink during the Summer '06 term at Cornell University (Engineering School).

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Chapter 3 - Notes: Chapter 3 03/06/2008 12:40:00 SUPPLY AND...

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