Economics supply, demand, market 91007

Economics supply, demand, market 91007 - Economics 9-10-07...

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Economics 9-10-07 Demand, Supply, and Market Equilibrium Markets Markets bring together buyers (demanders) and sellers (suppliers). They exist in many forms. Demand A schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specific periods of time. It shows the quantities of a product that will be purchased at various possible prices other thing equal. We stay “willing and able” because willingness alone is not enough. It is simply a statement of a buyer’s planes or intentions with respect to the purchase of a product. A time period needs to be stated, so we know whether the demand is large or small. Law of demand All else equal, as the price falls, the quantity demanded rises. There is a negative or inverse relationship between the two. The other things equal assumption is critical here. 1) The Law of Demand is consistent with common sense. The higher the price, the less of the item someone will buy. 2) Each buyer of a product will derive less satisfaction (or benefit/utility) from each successive unit of the product consumed. Law of diminishing marginal utility- The principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases. 3) The income effect indicates that a lower price increases the purchasing power of a buyer’s money income, enabling the buyer to purchase more of the product than before. A higher price has the opposite effect. The substitution effect suggests that at a lower price, buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive. Demand Curve Quantity demanded on the horizontal axis and price on the vertical axis Downward slope reflects the law of demand (people buy more of an item as price falls) Some say that price is the most influential factor on the amount purchased. Economists know that other factors can and do affect purchases. The factors are called Determinants of Demand and are assumed to be constant when a demand curve is drawn. They are the “other things equal” and are sometimes referred to as demand shifters
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1) A favorable change in consumer tastes for a product. Favorable change will shift
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This note was uploaded on 10/14/2008 for the course ECON 2001 taught by Professor Kephart during the Spring '08 term at Corning CC.

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Economics supply, demand, market 91007 - Economics 9-10-07...

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