chapter+3+macro+split+07-28-08

chapter+3+macro+split+07-28-08 - 1 Macroeconomics as a...

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1 Macroeconomics as a Second Language Chapter 3: Demand and Supply Martha L. Olney [email protected] July 28, 2008 The model of demand and supply is used to determine the price of a product. It is the most often used model in economics. Success in economics depends upon mastering the model of demand and supply. Key terms and concepts $ Model of Demand and Supply $ Good $ Service $ Market $ Demand $ Supply $ Equilibrium Price $ Equilibrium Quantity $ Quantity Demanded 3 - 1
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$ Market Demand $ Individual Demand $ Demand Schedule $ Demand Curve $ Move along a curve $ Shift of a curve $ Complementary Goods $ Substitute Goods $ Income $ Normal Good $ Inferior Goods $ Wealth $ Tastes and Preferences $ Quantity Supplied $ Market Supply $ Individual Supply $ Supply Schedule $ Supply Curve $ Substitutes in Production $ Complements in Production 3 - 2
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$ Market Equilibrium $ Market Shortage $ Market Surplus Key graphs $ Equilibrium in a market $ Shift of demand $ Shift of supply Overview of Model of Demand and Supply The model of demand and supply is used over and over in economics. This model answers the question: What determines the price and quantity sold in the market for a product? The product may be a good , a tangible product such as a pen, house, book, or shirt. Or the product may be a service , an intangible such as a doctor’s appointment, a haircut, computer repair, or DVD rental. A market is not a physical place. It is instead the collection of the actions of the buyers and sellers of a product. Demand captures the behavior of buyers. There are many factors that may influence the quantity or amount of a product that we wish to purchase. Economists usually identify five factors that influence buyer demand: $ the item’s price $ the prices of other items we could use with or instead of this product 3 - 3
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our income $ our wealth $ our tastes or preferences Supply captures the behavior of sellers. As with demand, there are many factors that may influence the quantity of a product that sellers wish to sell. Economists usually identify four factors that influence seller supply: $ the item’s price $ costs of inputs $ productivity of inputs $ the prices of other items that could be produced with the same inputs The item’s price matters to both buyers and sellers. The interaction of demand and supply determine the equilibrium price and equilibrium quantity of the product. At the equilibrium price, the quantity of the product buyers wish to purchase (called quantity demanded) equals the quantity of the product sellers wish to sell (called quantity supplied). Economists often say: prices depend upon supply and demand. Demand We focus first on price. Quantity demanded is the quantity associated with any one particular price. The many combinations of possible price and related quantity demanded make up the demand for the product. Demand refers to all the combinations of price and quantity demanded. Market demand for a product is the sum of everyone’s individual demand . 3 - 4
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This note was uploaded on 02/04/2011 for the course ECON 100B taught by Professor Wood during the Fall '08 term at Berkeley.

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chapter+3+macro+split+07-28-08 - 1 Macroeconomics as a...

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