sg04 - 4 Demand, Supply, and Market Equilibrium Chapter...

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4 Demand, Supply, and Market Equilibrium Chapter Summary This chapter shows how demand and supply determine prices. In addition, this chapter illustrates how to predict the effects of changes in demand or supply on market prices and quantities. Here are the main points of the chapter: A market demand curve shows the relationship between the quantity demanded and price, ceteris paribus . A market supply curve shows the relationship between the quantity supplied and price, ceteris paribus . Equilibrium in a market is shown by the intersection of the demand curve and the supply curve. When a market reaches equilibrium, there is no pressure to change the price. A change in demand changes price and quantity in the same direction: An increase in demand increases the equilibrium price and quantity; a decrease in demand decreases the equilibrium price and quantity. A change in supply changes price and quantity in opposite directions: An increase in supply decreases price and increases quantity; a decrease in supply increases price and decreases quantity. ± Study Tip In this chapter, pay careful attention to factors that shift the position of the demand and supply curves. Applying the Concepts After reading this chapter, you should be able to answer these five key questions: 1. How do changes in demand affect prices? 2. What could explain a decrease in price? 3. How does the adoption of new technology affect prices? 4. How do changes in supply affect prices? 5. How do changes in one market affect other markets?
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44 Chapter 4 4.1 The Demand Curve The quantity demanded of a particular good is the amount of a product that consumers are willing and able to buy. A number of factors affect how much of a good a consumer wants to purchase: the price of the product. the consumer’s income. the price of substitute and complement goods. the consumer’s preferences or tastes. the consumer’s expectations of future prices. To begin we examine a demand schedule , a table that shows the relationship between the price of a product and the quantity demanded of that product. When we talk about a demand schedule, we assume that all of the other factors listed above (tastes, income, etc.) are held constant and only the price of the good changes. Figure 4.1 of the text shows both the demand schedule and the demand curve. The demand curve is a graphical representation of the demand schedule. The curve shows the relationship between the price of a good and the quantity demanded of that good. An individual demand curve shows the relationship between the price of a good and the quantity demanded by an individual consumer. A market demand curve shows the relationship between price and quantity demanded by all consumers. Think of the students in your microeconomics class.
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sg04 - 4 Demand, Supply, and Market Equilibrium Chapter...

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