Chp3- Supply and Demand

Chp3- Supply and Demand - 31 ChapterThree DemandandSupply...

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Chapter Three Demand and Supply Demand o Law of Demand o States   that   as   the   price   of   the   goods   falls,  quantity demand rises, ceteris paribus o Only price is a factor Why does the law of demand apply? o Substitution Effect Substitute cheaper goods when price rises o Income Effect Prices rises therefore buying power drops 3-1
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Quantity Demanded Refers to a single point on the demand curve Change in quantity demanded o caused by a change in the goods’ own price o shown as a movement along the demand curve Distinguish between: An increase in quantity demanded A decrease in quantity demanded 3-2
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Demand Schedule for Carrots Point Price Per Ton Quantity Demanded 000s of tons/month U 20 110 V 40 90 W 60 77.5 X 80 67.5 Y 100 62.5 Z 120 60 3-3
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Dem and Curve for Carrots 0 20 40 60 80 100 120 140 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 Quantity of Carrots Price 3-5
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Question: does the movement from V to U represent an  3-6
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Demand Refers to the entire demand curve A Change in Demand Caused by some factor other than price Shown by a shift of entire demand curve Distinguish between: o An increase in demand  o A decrease in demand 3-7
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Changes in Demand o Changes in Prices of Related Goods Substitutes in consumption o Goods that are used in place of each other o Example:  Demand for Kraft Dinner and no-name brand. A rise in  the price of the no-name brand will cause the demand  curve for Kraft Dinner to shift to the right Complements in consumption Goods that are used together Examples: a slice of Wonder Bread and jam If there is a fall in the price of jam, the demand curve for  3-8
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Wonder Bread will shift right Expected Future Prices If prices are expected to fall in the future the demand 
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This note was uploaded on 04/02/2010 for the course ECON econ101 taught by Professor Trimarchi during the Fall '09 term at Waterloo.

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Chp3- Supply and Demand - 31 ChapterThree DemandandSupply...

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