D_S-Out - Economics 2 Intro Microeconomics OUTLINE DEMAND...

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Dr. Kurre Intro Microeconomics Penn State Erie OUTLINE DEMAND AND SUPPLY A market economy answers the three fundamental questions through supply and demand. I. DEMAND A) Basics 1) Definition: the relationship between the price of a good (or service) and the quantity that a consumer is willing and able to buy, ceteris paribus. 2) Individual demand schedule: a set of “if…then” statements 3) Rate of consumption; applies to some period of time (a flow , not a stock ) 4) Demand curve; how it’s graphed 5) Market demand B) Law of Demand 1) In words 2) Effect on the demand curve 3) Reasons: a) income and substitution effects b) extra units add less satisfaction than earlier units C) Shifts of the demand curve (What would make you buy more/less even if the price didn’t change?) 1) Shifters: P OG prices of other goods (substitutes and complements) Y income (normal and inferior goods) POP population—for market demand only (NOT just “number of buyers”!) T tastes and preferences E expectations of price and income (NOT just “any old expectations”) 2) Effect on the curve: a whole new relationship—a whole new curve -Shift the curve left or right (NOT up/down) 3) “Demand” vs. “quantity demanded” “demand” is the whole relationship or curve—shifters; a “change in demand” is a shift of the curve. “quantity demanded” is one point on one curve—change in price; a “change in quantity demanded” is a movement along a single curve from one point to another. II. SUPPLY A) Basics 1) Definition: the relationship between the price of a good (or service) and the quantity that a seller is willing and able to sell, ceteris paribus. 2) Individual supply schedule: a set of “if…then” statements 3) Rate of production; applies to some period of time 4) Supply curve 5) Market supply B) Law of Supply Reasons: profit motive; if the price is higher, there is more profit in the good than before, so the producer is more willing to devote her time/effort/resources to this good, rather than to others she could be producing, ceteris paribus. 1
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This note was uploaded on 03/25/2008 for the course ECON 004 taught by Professor Graf,pauledwin during the Spring '07 term at Pennsylvania State University, University Park.

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D_S-Out - Economics 2 Intro Microeconomics OUTLINE DEMAND...

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