Week 1 summary to use - Demand When both Supply and Demand...

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Demand $ Q When both Supply and Demand shift, what happens? Supply shifts [increases or decreases] because one of the determinants of Supply changes. Demand shifts [increases or decreases] because one of the determinants of Demand changes. We can draw these out [and you should for practice] but here is a neat tool that may help you. NOTE: Only use this tool when talking about CHANGES in Demand and/or SUPPLY. Does not work with movements ALONG a curve. Changes Price tends to Quantity tends to Demand Increases Increase Increase Demand Decreases Decrease Decrease Supply Increases Decrease Increase Supply Decreases Increase Decrease Notice that if Demand increases and Supply increases, we will FOR SURE have an Increase in Quantity, but we can’t say FOR SURE what will happen to Price because---an demand increase tends to increase Price but a supply increase tends to decrease price. Question: In the above scenario, what would cause price to increase? Definitions Demand: Consumers’ willingness and ability to buy various QUANTITIES of a good or service at EACH PRICE in a set of POSSIBLE PRICES at a Given Time . Quantity-Demanded: Consumers’ willingness and ability to buy a QUANTITY of a good or service at A PRICE at a Given Time . Price: The actual dollar amount that the consumer pays or is willing and able to pay. Determinants of Demand: The 6 broad categories of consumer attitudes and attributes that determine what demand is or what demand will be. 1. Tastes and Preferences: Things you like/want or are influenced to like/want. Influences your willingness to buy. 2. Market Expectations: What you think or expect to be happening in the market for the good or service in the future compared to now. This includes what you think the price will be, what you think the suppliers of the good or service are going to do, what you guess about the number of other competing goods and the number of sellers and buyers. This is the SECOND MOST IMPORTANT determinant of demand—next to Tastes and Preferences 3. Income : The amount of income you have helps determine your Disposable Income, the amount you can spend on the good/service. Other income influences would be credit availability, etc. 4. Number of Buyers: Remember that the market responds to MARKET DEMAND not individual demand. The more buyers there are in the market the more demand there will be for the good or service. 5. Price of Substitute Goods: These are goods/services that you are willing to consume in place of the good you usually or originally had considered. Generally, as the price of a good increases, consumers will substitute other similar goods whose prices are lower. 6.
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This note was uploaded on 07/31/2011 for the course ECON 545 taught by Professor Hodges during the Spring '11 term at Keller Graduate School of Management.

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Week 1 summary to use - Demand When both Supply and Demand...

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