ch3 - Demand and Supply Markets and Prices A competitive...

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Chapter 3 Demand and Supply Markets and Prices A competitive market is a market that has many buyers and many sellers, so that no single buyer or seller can influence the price. The ratio of one price to another is called a relative price , and a relative price is an opportunity cost. Demand The quantity demanded is the amount of a good or service that consumers plan to buy in a given time period at a particular price. The law of demand states Other things remaining the same, the higher the price of a good, the lower is the quantity demanded; and the lower the price of a good, the greater is the quantity demanded . Demand refers to the entire relationship between the price of the good and the quantity demanded of the good. Demand is illustrated by a: o Demand schedule o Demand curve A demand curve shows the relationship between the quantity demanded of a good and its price when all other influences on consumers’ planned purchases remain the same. When any factor that influences buying plans other than the price of the good changes, there is a change in demand . There are five key factors that change demand. 1. The prices of related goods A substitute is a good that can be used in place of another good. If the price of a substitute rises, people buy less of the substitute and more of the other good. A complement is a good that that is used in conjunction with another good. If the price of a donut, a complement of coffee rises, people buy less coffee. 2. Expected future prices 1
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Income A normal good is one for which demand increases as income increases. An inferior good is one for which demand decreases as income increases. 4. Expected future income 5. Population 6. Preferences When demand increases, the demand curve shifts rightward and when demand decreases, the demand curve shifts leftward. The figure below shows the distinction between a change in the quantity demanded and a change in demand. When the price of a good changes, there is a change in the quantity demanded , which is shown by a movement along the demand curve . When any other influence on buying plans changes, there is a change in demand,
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ch3 - Demand and Supply Markets and Prices A competitive...

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