Chapter 3 - ECON 004 Principles of Economics Chapter 3...

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1 ECON 004 Principles of Economics Chapter 3 Supply and Demand • Market – A group of buyers and sellers with the potential to trade with each other – Can be defined broadly or narrowly • Macroeconomics • Microeconomics The economy – A collection of individual markets ECON 004 Principles of Economics Markets Macroeconomic Markets Microeconomic Markets ECON 004 Principles of Economics Product and Resource Markets Product market Resource market
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2 ECON 004 Principles of Economics Figure 1 The Circular Flow Model Flow of goods and resources •Resource market - •Product Market - Money flows - Firms – - Households – ECON 004 Principles of Economics Competition in Markets Imperfectly competitive markets Perfectly competitive markets (or just competitive markets) ECON 004 Principles of Economics Using Supply and Demand Supply and demand model Perfect competition To analyze a market, we need both, Supply and Demand
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3 ECON 004 Principles of Economics Demand – Quantity Demanded Quantity demanded amount of a good all buyers in a market would choose to buy • during a period of time given their constraints ECON 004 Principles of Economics The Law of Demand When the price of a good rises and everything else remains the same , the quantity of the good demanded will fall Ceteris paribus assumption ECON 004 Principles of Economics The Demand Schedule Demand schedule (definition) A list showing the quantity of a good that consumers would choose to purchase at different prices, with all other variables held constant.
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