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Unformatted text preview: Alexa Vogel SUPPLY AND DEMAND NOTES Market o A group of buyers and sellers with the potential to trade with each other (Can be defined broadly or narrowly) o Macroeconomic Markets All capital goods - one market All consumer goods - consumption goods Overall view of the economy o Microeconomic Markets Narrowly defined Models - specific commodities The Economy o A collection of individual markets o Perfect competition o Buyers/sellers take the market price o Many small buyers and sellers o Standardized product o Rare in the real world, but many markets are close to perfect competition DEMAND Every item (good/service) has a demand curve A demand curve has 2-axis; price and quantity The curve shows the quantity of goods/service that will be purchased during a given amount of time across various prices LAW OF DEMAND: As the price of a product increases, the quantity demanded will decrease (inverse relationship) Shift to the right is good and left is bad Language is important when discussing demand Quantity demanded means a particular amount that buyers would choose to buy at a specific price. It is a number represented by a single point on a demand curve. When a change in the price of a good moves us along a demand curve, it is a change in quantity demand The term demand means the entire relationship between price and quantity demandedand represented by the entire demand curve. When something other than price changes, causing the entire demand curve to shift, it is a change in demand Changes that cause the entire curve to shift to the left 1. A decrease in the substitute or competing product 2. An increase in the price of a complimentary product 3. An change in preferences 4. A decrease in the price is expected in the future 5. Decrease in population 6. Decrease in incomes SUPPLY The quantity of goods/services which producers (sellers) are willing and able to sell at various prices at any given time LAW OF SUPPLY: As the price of a good/service increases, the quantity supplied will also increase (positive/direct relationship) Supply schedule shows quantities of a good or service firms would choose to produce and sell at different prices, with all other variables held constant Supply curve graphical depiction of a supply schedule. Shows quantity of a good or service supplied at various prices, with all other variables held constant Factors that Impact Supply: 1. Changes in price relative to quantity of a product 2. Changes in production cost 3. Changes in technology 4. Changes in government regulations 5. Changes in the psychology of the owner 6. Changes in weather conditions 7. Changes in the price of a substitute 8. Changes in the price of a complimentary product The Three-Step Process 1. Characterize the Market Decide which market or markets best suit problem...
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This note was uploaded on 02/04/2011 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.
- Fall '07
- Supply And Demand