ch04 - Chapter 4 The Market Forces of Supply and Demand...

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Unformatted text preview: Chapter 4 The Market Forces of Supply and Demand WHAT’S NEW IN THE THIRD EDITION: This chapter has been completely rearranged and rewritten. LEARNING OBJECTIVES: By the end of this chapter, students should understand: what a competitive market is. what determines the demand for a good in a competitive market. what determines the supply of a good in a competitive market. how supply and demand together set the price of a good and the quantity sold. the key role of prices in allocating scarce resources in market economies. CONTEXT AND PURPOSE: Chapter 4 is the first chapter in a three-chapter sequence that deals with supply and demand and how markets work. Chapter 4 shows how supply and demand for a good determines both the quantity produced and the price at which the good sells. Chapter 5 will add precision to the discussion of supply and demand by addressing the concept of elasticity—the sensitivity of the quantity supplied and quantity demanded to changes in economic variables. Chapter 6 will address the impact of government policies on prices and quantities in markets. 51 4 THE MARKET FORCES OF SUPPLY AND DEMAND 52 ✦ Chapter 4/The Market Forces of Supply and Demand The purpose of Chapter 4 is to establish the model of supply and demand. The model of supply and demand is the foundation for the discussion for the remainder of this text. For this reason, time spent studying the concepts in this chapter will return benefits to your students throughout their study of economics. Many instructors would argue that this chapter is the most important chapter in the text. Chapter 4/The Market Forces of Supply and Demand ✦ 53 KEY POINTS: 1. Economists use the model of supply and demand to analyze competitive markets. In a competitive market, there are many buyers and sellers, each of whom has little or no influence on the market price. 2. The demand curve shows how the quantity of a good demanded depends on the price. According to the law of demand, as the price of a good falls, the quantity demanded rises. Therefore, the demand curve slopes downward. 3. In addition to price, other determinants of how much consumers want to buy include income, the prices of substitutes and complements, tastes, expectations, and the number of buyers. If one of these factors changes, the demand curve shifts....
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This note was uploaded on 11/16/2009 for the course ECO 1001 taught by Professor Dr.sum during the Fall '08 term at Al Ahliyya Amman University.

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ch04 - Chapter 4 The Market Forces of Supply and Demand...

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