ECON 2010-Exam 1

ECON 2010-Exam 1 - 8-26-09Chapter 3-- Where Prices Come...

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Unformatted text preview: 8-26-09Chapter 3-- Where Prices Come From:-Interaction of demand and supplyoPerfectly competitive market- market where following conditions are in effect:Many buyers and sellers, none w/any powerAll firms selling identical productsNo barriers significant barriers to entry for new firms wishing to enter market-Demand side of market:oDemand schedules and demand curvesDemand schedule:table or chart showing relationship between price of product and quantity of product demandedQuantitydemanded: amt of good/ service that consumer is willing and able to purchase at given priceDemand curve: curve showing relationship between price of product and quantity of product demandedMarket demand:demand by all consumers of given good/service**Figure 3-1**oLaw of DemandAll else constant, when price of good falls, quantity demanded of good will increase--- price of a good rises, quantity demanded of good will decreaseSubstitution effect:change in quantity demanded of good that results from change in price, making good more or less expensive relative to other goods that are substitutesIncome effect:change in quantity demanded of good that results from effect of change in goods price on consumers purchasing poweroThe ceteris paribus condition:Ceteris paribus( all else equal)requirement that when analyzing relationship between 2 variablessuch as price and quantity demandedother variables must be held constantShift of demand curve is an increase or decrease in demand; movement along a demand curve is an increase or decrease in quantity demandedoVariables that Shift Market DemandMany variables other than price can influence market demandIncome:Normal good:good for which demand increases as income rises and decreases as income fallsInferior good: good for which demand increases as income falls and decreases as income risesPrice of related goods:Substitutes:good and services that can be used for same purposeComplements: goods and services that are used togetherTastes & Preferences:Consumers can be influenced by an advertising campaign for product*why people do/purchase things that dont necessarily make sense*Size of Market(including population and demographic shifts)Demographics: characteristics of population w/ respect to age, race, and gender; Houston vs. Baton RougeExpected Future Prices: consumers choose not only which products to buy but also when to buy them**TABLE 3-1**Change in Demand versus Change in Quantity Demanded **FIGURE 3-3**-Supply Side of MarketoQuantity supplied:amt of good or service that firm is willing and able to supply at given priceoSupply Schedules and Supply CurvesSupply schedule: table that shows relationship between price of product and quantity of product suppliedSupply curve:curve that shows relationship between price of product and quantity of product supplied**FIGURE 3-4**oLaw of Supply:all else constant, increases in price cause increases in quantity supplied, and...
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This note was uploaded on 05/06/2010 for the course ECON 2010 taught by Professor Roussel during the Fall '08 term at LSU.

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ECON 2010-Exam 1 - 8-26-09Chapter 3-- Where Prices Come...

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