Principles of Microeconomics + DiscoverEcon code card

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Chapter 3 Supply and Demand: An Introduction I. Introduction/Overview A. New York City’s food market is much more efficient than its rental housing market. B. Basic economic questions must be answered and can be answered through central planning or markets. 1. Economic questions can be answered by centrally, by individuals or small groups. 2. Today, most economies answer the questions through free market (capitalist), private market decision-making II. Markets A. Markets are where buyers and sellers come together to exchange goods and services. For now we will consider a market to mean a marketplace with a large number of buyers and sellers – so large that no one buyer or seller can influence price or quantity sold. B. The prices of a good or service is determined by costs of production and value to users. III. Demand A. Demand is a schedule or curve that shows the various amounts of a product that consumers are willing and able to buy at each specific price in a series of possible prices during a specified time period holding constant other influences such as income, price of other goods, consumer expectations, taste and preferences, number of buyers, etc. The schedule shows how much buyers are willing and able to purchase at five possible prices. To be meaningful, the demand schedule must have a period of time associated with it./ 1
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B. Law of demand is a fundamental characteristic of demand behavior. 1. Other things being equal, as price increases, the corresponding quantity demanded falls. (an inverse relationship between price and quantity demanded ). 3. Note the “other-things-equal” (all else constant) assumption refers to consumer income, tastes, preferences, expectations, prices of related goods, and other things besides the price of the product being discussed. 4. Explanation of the law of demand a. Diminishing marginal utility : Why do we consumer more of some goods and less of others? Economists argue that we consume because we receive satisfaction from consumption of a good or service. We also know that there is a cost of acquiring goods such as out of pocket money, feeling full while eating at an all-you-can-eat, or getting board while standing in line to get free tickets to a concert. As you recall economics is a study of what occurs when change takes place – we call that change marginal analysis. If you are hungry at McDonald’s, how many Big Mac’s will you eat? That first bite tastes great, so does the second and third but perhaps the forth bite is less satisfying but still fulfilling but the 12 th bite is less satisfying than the 11 th that you get sick. The decrease in added satisfaction that results as one consumes additional
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This note was uploaded on 02/01/2008 for the course ECON 2213 taught by Professor Murphy during the Spring '08 term at NSUOK.

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Ch3_Class_Demand-Sup - Chapter 3 Supply and Demand An Introduction I Introduction/Overview A New York City`s food market is much more efficient

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