chap3 - Chapter3:DemandandSupply Bartervs.monetaryeconomy

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    Chapter 3: Demand and Supply
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    Barter vs. monetary economy Barter – goods are traded directly for  other goods Problems: requires double coincidence of wants large number of trading ratios: N(N-1)/2  (high information costs) Monetary economy has lower  transaction and information costs
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    Relative and nominal prices Relative price = price of a good in terms  of another good Nominal price = price expressed in  terms of the monetary unit Relative price is a more direct measure  of opportunity cost
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    Markets In a market economy, the price of a  good is determined by the interaction of  demand and supply
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    Demand A relationship between price and  quantity demanded in a given time  period,  ceteris paribus .
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    Demand schedule
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    Demand curve
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    Law of demand An inverse relationship exists between  the price of a good and the quantity  demanded in a given time period,  ceteris paribus . Reasons: substitution effect income effect
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    Change in quantity demanded  vs. change in demand Change in quantity demanded Change in demand
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    Market demand curve Market demand is the horizontal summation  of individual consumer demand curves
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    Determinants of demand tastes and preferences prices of related goods and services income number of consumers expectations of future prices and  income
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    Tastes and preferences Effect of fads:
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  Prices of related goods substitute goods – an increase in the  price of one results in an increase in the  demand for the other. complementary goods – an increase in 
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This note was uploaded on 11/04/2010 for the course ECONOMICS Econ211 taught by Professor Marcus during the Spring '10 term at American University of Beirut.

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chap3 - Chapter3:DemandandSupply Bartervs.monetaryeconomy

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