CN_intromicro_ch3

CN_intromicro_ch3 - 1 Chapter 3 Demand Illustrated by an...

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1 Chapter 3 Demand Illustrated by an equation, graph or schedule. Law of Demand - There is a negative relationship between Price and Quantity Demanded. Quantity Demanded - The total amount that a household would buy if it could buy all it wants at the current market price. Q d = 10 - P (1) Quantity Price Demanded 10 0 9 1 8 2 7 3 6 4 5 5 4 6 3 7 2 8 1 9 0 10
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2 Determinants of Demand Price of the Product Itself (The Product’s Own Price) Price of Related Goods Complements - Products that are used together. (Peanut Butter and Jelly) Substitutes - Products that will be used instead of each other. (Coke and Pepsi) Income Normal Good - A good whose consumption is positively related with income. Inferior Good - A good whose consumption is negatively related with income. Wealth Preferences Future Expectations Flow Variable - A variable that can be measured over an interval of time. (Income is a flow variable, you are paid a fixed amount each week.) Stock Variable - A variable that can only be measure at a point in time. (Wealth is a stock variable, it exists because over time our income has been greater than our expenses.) Change in Demand Vs. Change in Quantity Demanded Change in Demand is when a consumer is willing to purchase a larger quantity of a product at every price. There is a new line demonstrating the relationship between price and quantity demanded. This is caused by a change in: the Price of a Related Good, Income, Wealth, Preferences or Future Expectations. Change in Quantity Demanded
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CN_intromicro_ch3 - 1 Chapter 3 Demand Illustrated by an...

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