Chap 3 - law of demand inverse relationship b/t price of...

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law of demand – inverse relationship b/t price of good or service & quantity of it that consumers are willing to purchase Because amount a consumer is willing to pay for a good is directly related to good’s value to them, the demand curve indicates the marginal benefit (or value) customers receive from additional units consumer surplus – difference b/t maximum amount consumers would be willing to pay consumers will tend to expand their consumption of a good until its price & marginal value are equal availability of substitutes is main reason why demand curve for a good slopes downward elastic – small price change will cause large change in amount purchased; lack of substitutes inelastic - when close substitutes are unavailable, even a large price change may not cause much of a change in quantity demanded availability of substitutes is main determinant of product’s elasticity or inelasticity & thus how flat or steep the demand curve is purpose of demand curve is to show what effect a price change will have on quantity demanded (or purchased) of a good change in quantity demanded – change in quantity of good purchased based solely on price change; affects steepness of curve change in demand – changes in other factors than a good’s price; entire demand curve will shift inward or outward; factors that cause change in demand: changes in consumer income changes in number of consumers in market changes in price of related good, change in expectations demographic changes opportunity cost of production – sum of producer’s cost of each resource used to produce a good willingness of consumers to pay a price greater than a good’s opportunity cost indicates that they value the good more than other things that could have been produced with same resources
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losses occur when revenue derived from sales in insufficient to cover the opportunity cost of the resources used to produce a good or service
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This note was uploaded on 05/05/2011 for the course ECON 101 taught by Professor Daniels during the Spring '11 term at Texas State.

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Chap 3 - law of demand inverse relationship b/t price of...

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