Lecture_Microeconomics_Chapter3-1

Lecture_Microeconomics_Chapter3-1 - Demand, Supply, and...

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3 Demand, Supply, and Market Equilibrium
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FIRMS AND HOUSEHOLDS: THE BASIC DECISION-MAKING UNITS firm An organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy. entrepreneur A person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business. households The consuming units in an economy.
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INPUT MARKETS AND OUTPUT MARKETS: THE CIRCULAR FLOW product or output markets The markets in which goods and services are exchanged. input or factor markets The markets in which the resources used to produce products are exchanged.
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INPUT MARKETS AND OUTPUT MARKETS: THE CIRCULAR FLOW FIGURE 3.1 The Circular Flow of Economic Activity
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INPUT MARKETS AND OUTPUT MARKETS: THE CIRCULAR FLOW labor market The input/factor market in which households supply work for wages to firms that demand labor. capital market The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.
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INPUT MARKETS AND OUTPUT MARKETS: THE CIRCULAR FLOW land market The input/factor market in which households supply land or other real property in exchange for rent. factors of production The inputs into the production process. Land, labor, and capital are the three key factors of production.
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DEMAND IN PRODUCT/OUTPUT MARKETS A household’s decision about what quantity of a particular output, or product, to demand depends on a number of factors including: The price of the product in question The income available to the household The household’s amount of accumulated wealth The prices of other products available to the household The household’s tastes and preferences ■ The household’s expectations about future income, wealth, and prices
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DEMAND IN PRODUCT/OUTPUT MARKETS quantity demanded The amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price. CHANGES IN QUANTITY DEMANDED VERSUS CHANGES IN DEMAND The most important relationship in individual markets is that between market price and quantity demanded
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DEMAND IN PRODUCT/OUTPUT MARKETS PRICE AND QUANTITY DEMANDED: THE LAW OF DEMAND demand schedule A table showing how much of a given product a household would be willing to buy at different prices. TABLE 3.1 Anna’s Demand Schedule for Telephone Calls PRICE (PER CALL) QUANTITY DEMANDED (CALLS PER MONTH) $ 0 30 .50 25 3.50 7 7.00 3 10.00 1 15.00 0
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demand curve A graph illustrating how much of a given product a household would be willing to buy at different prices. FIGURE 3.2
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This note was uploaded on 03/30/2008 for the course ECON 2005 taught by Professor Zirkle during the Spring '07 term at Virginia Tech.

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Lecture_Microeconomics_Chapter3-1 - Demand, Supply, and...

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