Micro2 - Chapter 2: Supply and Demand Market Analysis...

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Chapter 2: Supply and Demand Market Analysis Market: A Place where demand and supply meet or trade takes place. Demand: Represents consumer response to prices. Demand Curve shows quantities that a consumer is willing and able to buy at different prices. Note That , demand shows quantities that consumer is willing to buy at different prices, not the quantities that consumer actually buys. Demand for a good can be expressed as Q = f(P). In a simple linear form, the function is Q = a – bP , where b is the slope of the demand curve.
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Chapter 2: Supply and Demand Distinction Between Demand & Quantity Demanded: Quantity demanded changes if price changes. Demand changes due to changes in demand shifters .
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Chapter 2: Supply and Demand Demand Shifters: Income, Price of related goods ( ), taste, populations, expected prices, and else.
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Chapter 2: Supply and Demand Given the demand shifters, demand equation for a good can be expressed in general form as: Q = f(P, Pc, Ps, I, A, z) Where, Q is the quantity, P is the own-price of the good, Pc is the price of complementary good, Ps is the price of the substitute, I is income, A is advertising, and z represents other variables, such as interest rate and others. The linear form of the demand function is: Q = β o - β 1P - β 2Pc+ β 3Ps + β 4I+ β 5A The inverse demand function is when the function is expressed in terms of P as the dependent variable. That is: P = α o - α 1Q - α 2Pc + α 3Ps + α 4I + α 5A
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Chapter 2: Supply and Demand Supply: Quantities that a producer is willing and able to supply at different prices. Supply function Q = f(P), or in linear form Q = a + bP .
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Chapter 2: Supply and Demand Quantity supplied changes due to price change. Supply changes due to changes in supply shifters . Supply Shifters: Technology, Price of Inputs, Sales Tax, expected prices, and else.
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Chapter 2: Supply and Demand Market: Demand and Supply Meet.
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Chapter 2: Supply and Demand Effect of Increase in Income (A Demand Shifter): Demand + , Supply No Change , Qe & Pe +
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Chapter 2: Supply and Demand Effect of Increase in Oil Prices ( A Supply Shock): Demand No Change , Supply - , Pe + , Qe - .
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Chapter 2: Supply and Demand Demand + , Supply - , Qe ? , Pe + .
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Chapter 2: Supply and Demand Elasticity Elasticity is one of the most applied and widely used concepts in economics. Price elasticity of demand is a measure of response of quantity demanded to a change in price. It is defined as percentage change in quantity over percentage change in price e p = % Q / % P Being the ratio of two numbers, |e p | has to be either less than one, more than one, or equal to one. If
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Micro2 - Chapter 2: Supply and Demand Market Analysis...

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