Chapter 3 Notes - Vandan Desai ECON 102Principles of...

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Vandan Desai ECON 102—Principles of Macroeconomics 1 Chapter 3—The Supply and Demand Model (Lecture &otes) —model economists use to explain how prices are determined in a market o Demand —describing the behavior of consumers in the market o Supply —describing the behavior of firms in the market o Market equilibrium —connecting supply and demand and describing how consumers and firms interact in the market I. Demand —a relationship between price (the amount of money or other goods that one must pay to obtain a particular good) and quantity demanded (the quantity of good that people want to buy at a given price during a specific time period) A. Quantity consumers are willing to buy depends on many other things besides the price of the good—all held constant ( ceteris paribus ) B. Describes how much of a good consumers will purchase at each price C. Demand schedule —a tabular presentation of demand showing the price and quantity demanded for a particular good, all else being equal D. Law of demand —the tendency for the quantity demanded of a good in a market to decline as its price rise (price and quantity demanded are negatively related ) E. The Demand Curve —a graph of demand showing the downward sloping relationship between price (vertical y-axis) and quantity demanded (horizontal x-axis) F. Shifts in Demand i. An increase in demand shifts the demand curve to the right (more items purchased) ii. A decrease in demand shifts the demand curve to the left (less items purchased) iii. Consumers’ Preferences —change in people’s tastes or preferences (9/11) iv. Consumers’ Information —change in info. relating to a product (dangers or recall) v. Consumers’ Incomes —increase in income increases the demand for most goods and decrease in income decreases the demand for most goods 1. ±ormal good —a good for which demand increases when income rises and decreases when income falls (e.g., jewelry and snowplow service) 2. Inferior good —a good for which demand decreases when income rises and increase when income falls (e.g., Christmas candy and snow shovels) vi. The Number of Consumers in the Market —increase in number of consumers will increase demand and decrease in number of consumers will decrease demand vii. Consumers’ Expectations of the Future Price
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This note was uploaded on 10/31/2010 for the course ECON 201 taught by Professor Coomber during the Spring '08 term at Community College of Baltimore County.

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Chapter 3 Notes - Vandan Desai ECON 102Principles of...

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