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Week 03, Day 1 - Chapter 03 Overheads (revised)

# Week 03, Day 1 - Chapter 03 Overheads (revised) - Chapter 3...

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Chapter 3 – Supply and Demand The Demand Side Factors Influencing the Demand Side Quantity Demanded Vs Demand The Supply Side Factors Influencing the Supply Side Quantity Supplied Vs Supply Market Equilibrium Changes in Supply and Demand Four Key Conclusions The demand and supply model explains how competitive markets operate. The demand side represents the buyers’ side in a market and the supply side represents the sellers’ side in a market. The Demand Side The quantity demanded (Q D ) of a product (the amount that buyers wish to buy during a time period) is determined by several variables. We will examine these variables one at a time keeping other variables constant (ie ceteris paribus). 1) Price of the product (P) – If a product’s price increases, quantity demanded decreases as buyers turn to alternatives. The relationship between price and quantity demanded is known as demand. Q: The demand for widgets is represented by Q D = 14 – 2P. Graph the demand curve. A:

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Graphically, quantity demanded is represented by a point that lies on a demand curve and demand is represented by the entire curve. 2) Average income – If a good is normal and average incomes increase, quantity demanded and demand increase. If a good is inferior and average incomes increase, quantity demanded and demand decrease. Examples of inferior goods: transit passes, no-name brands, 3) Prices of related goods – If goods X and Y are substitutes in consumption and the price of X increases, the quantity demanded of and the demand for Y increase. Examples of substitutes: butter/margarine, hamburgers/pizza If goods X and Y are complements in consumption and the price of X increases, the quantity demanded of and the demand for Y decrease. Examples of complements: tomato sauce/pasta, milk/cereal 4) Tastes – If buyers tastes change in favour of a good, the quantity demanded of and demand for the good increase. 5) Population – If the population increases, quantity demanded and demand increase. 6) Expectations – If the price of a good is expected to
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Week 03, Day 1 - Chapter 03 Overheads (revised) - Chapter 3...

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