CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 89 “—and seventy-five cents.” “Two dollars.” ± 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. ± 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. ± In addition to price, other determinants of the quantity demanded include income, tastes, expectations, and the prices of substitutes and complements. If one of these other determinants changes, the demand curve shifts. ± The supply curve shows how the quantity of a good supplied depends on the price. According to the law of supply, as the price of a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward. ± In addition to price, other determinants of the quantity
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.