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Demand and Supply, ch. 3

Demand and Supply, ch. 3 - Demand and Supply ch 3 I Markets...

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Demand and Supply, ch. 3 I. Markets and Prices 1. Market a. Arrangement that enables buyers and sellers to get info and do business b. For goods, services, resources and inputs 2. Competitive market a. Market that has many buyers and sellers, so no single one can influence price 3. Money price a. Number of dollars that must be given up in exchange for it 4. Opportunity cost a. Action is highest valued alternative 5. Relative price a. Ratio of one price to another, is an opportunity cost II. Demand 1. Quantity demanded a. Amount that consumers plan to buy during time period at particular price b. Measured as amount per unit of time b. Law of Demand 1. Other things remaining same, higher price of good, smaller is quantity demanded; and lower price of good, greater is quantity demanded 2. Higher price reduce quantity demanded because: a. Substitution effect b. Income effect ii. Substitution Effect 1. Substitutes a. Other goods can be used in place b. As opportunity cost rises, people buy less of good and more of substitutes iii. Income effect 1. When price rises and all other influences remain same, price rises relative to people income so people cannot afford to buy all things previously bought c. Demand Curve and Demand Schedule 1. Demand a. Relationship between price of good and quantity demanded of good
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2. Demand curve a. Relationship between quantity demanded of good and price when all other influences remain same 3. Demand schedule a. List quantities demanded at each price when all influences remain same ii. Willingness and Ability to Pay 1. Measure of marginal benefit 2. Small quantity, highest price someone willing to pay for one more unit is high 3. Large, marginal benefit of additional unit falls d. Change in Demand 1. Change in demand a. Change in buyers’ plans that occurs when some influence on plans other than price of
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Demand and Supply, ch. 3 - Demand and Supply ch 3 I Markets...

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