Chapter 4

Chapter 4 - Chapter 4 Supply and Demand: An Initial Look...

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Chapter 4 – Supply and Demand: An Initial Look The Invisible Hand The invisible hand is a phrase used by Adam Smith to describe how, by pursuing their own self-interests, people in a market system are “led by an invisible hand” to promote the well-being of the community. Demand and Quantity Demanded The quantity demanded is the number of units of a good that consumers are willing and can afford to buy over a specified period of time. The quantity demanded of any product normally depends on its price. Quantity demanded also depends on a number of other determinants, including population size, consumer incomes, tastes, and the prices of other products. There is no one demand figure for milk, or for computers, or for engineers. Rather, there is a different quantity demanded at each possible price, all other influence being held constant. The Demand Schedule o A demand schedule is a table showing how the quantity demanded of some product during a specified period of time changes as the price of that product changes, holding all other determinants of quantity demanded constant. o As the price of an item rises, the quantity demanded normally falls. As the price falls, the quantity demanded normally rises, all other things held constant. The Demand Curve o A demand curve is a graphical depiction of a demand schedule. It shows how the quantity demanded of some product will change as the price of that product changes during a specified period of time, holding all other determinants of quantity demanded constant. Shifts of the Demand Curve
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Chapter 4 - Chapter 4 Supply and Demand: An Initial Look...

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