{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter 3 Outline

Chapter 3 Outline - Chapter 3 Outline 1 A market is any...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 3 Outline 1. A market is any institution or mechanism that brings together buyers (“demanders”) and sellers (“suppliers”) of a particular good or service. This chapter assumes that markets are highly competitive. 2. Demand is a schedule of prices and the quantities that buyers would purchase at each of those prices during a selected period. a. The law of demand states that there is an inverse or negative relationship between price and quantity demanded. Other things equal, as price increases, buyers will purchase smaller quantities, and as price decreases, they will purchase larger quantities. There are three explanations for the law of demand: 1. Diminishing marginal utility. After a point, consumers get less satisfaction or benefit from consuming more and more units. 2. Income effect. A higher price for a good decreases the purchasing power of consumers’ incomes so that they can’t buy as much of the good. 3. Substitution effect. A higher price for a good encourages consumers to search for cheaper substitutes and thus buy less of it b. The demand curve has a downward slope and is a graphic representation of the law of demand. c. Market demand for a good is a summation of all the demands of all consumers of that good at each price. Although price has the most important influence on quantity demanded, other factors can influence demand. These factors, called determinants of demand, are consumer tastes (preferences), the number of buyers in the market, consumers' income, the prices of related goods, and consumer expectations. d. An increase or decrease in the entire demand schedule and the demand curve (a change in demand) results from a change in one or more of the determinants of demand. For a particular good, 1. an increase in consumer tastes or preferences increases its demand; 2. an increase in the number of buyers increases its demand; 3. consumers’ income increases its demand if it is a normal good (one where income and demand are positively related), but an increase in consumers’ income decreases its demand if it is an inferior good (one where income and demand are negatively related); 4. an increase in
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern