Chapter 2 Outline - Chapter 2 Main Topics Demand: the...

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Chapter 2 Main Topics Demand: the quantity of a good or service that consumers demand depends on price and other factors such as consumers’ incomes and the price of related goods Supply: the quantity of a good or service that firms supply depends on price and other factors such as the cost of inputs firms use to produce the good or service Market equilibrium: the interaction between consumers’ demand and firms’ supply determines the market price and quantity of a good or service that is bought and sold. Shocking the equilibrium: changes in a factor that affect demand, or a new government policy alter the market price and quantity of a good Effects of government interventions: government policies may alter the equilibrium and cause the quantity supplied to differ from the quantity demanded When to use the supply-and-demand model: the supply-and-demand model applies only to competitive markets 2.1 Demand Consumers decide how much of a good or service to buy based on its price and many other factors that include their own tastes, information, prices of other goods, income and government actions Consumer taste determines what consumers buy. Advertising may influence tastes The price of other goods affect a consumer’s purchasing decision Substitute: a product that you view is similar or identical to the one you are considering purchasing Complement: a good that you like to consume at the same time as the product you
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Chapter 2 Outline - Chapter 2 Main Topics Demand: the...

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