Chapter 03_Demand and supply

Chapter 03_Demand and supply - DEMAND AND SUPPLY CHAPTER 3...

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DEMAND AND SUPPLY 3 CHAPTER
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Markets and Prices A market is any arrangement that enables buyers and sellers to get information and do business. A Perfectly Competitive Market Market that has many buyers and many sellers and no single buyer or seller can influence the price.
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Demand Quantity demanded: amount that consumers plan to buy during a given time period, and at a particular price. Consumers’ plan to buy is influenced by: 1. The price of the good 2. The prices of other goods 3. Expected future prices 4. Income 5. Population 6. Preferences
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Demand Law of demand Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded. The law of demand results from a substitution effect an income effect
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Demand Substitution effect —when price of a good rises, people seek substitutes for it, so the quantity demanded decreases. Income effect —when the price of a good rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded decreases.
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Demand Demand curve : shows the relationship between the quantity demanded of a good and its price when all other influences on consumers‟ planned purchases remain the same.
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Demand Demand curve CD-Rs. Increase in price, ceteris paribus , brings a decrease in the quantity demanded and a movement along the demand curve.
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Demand A demand curve is also a willingness- to-pay curve. Willingness to pay measures marginal benefit .
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Demand Change in Demand When any factor that influences buying plans other than the price of the good changes, there is a change in demand for that good. We get a new demand curve. It can shift rightward or leftward.
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Demand Table 3.1 summarizes the factors that change demand. They are: Prices of related goods A substitute is a good that can be used in place of another good; e.g., Coke and Pepsi.
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Chapter 03_Demand and supply - DEMAND AND SUPPLY CHAPTER 3...

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