UNIT 2 NOTES - UNIT 2 What is a market o A group of buyers and sellers of a particular good or service o Farmers market NYSE etc o Uncoordinated

UNIT 2 NOTES - UNIT 2 What is a market o A group of buyers...

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UNIT 2 What is a market?
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An increase in the price of a good/service Leaves consumer w/ fewer resources to buy the same bundle of goods/services as previously Consumer is relatively/ feels “poorer” o Substitution Effect Another explanation for law of demand Consider goods that provide almost the same satisfaction As prices of one good increases… It becomes relatively more expensive Consumers substitute to the other good Relation between the prices of 2 goods, good 1 is the one in which concerns us and there is a substitute for good 1, assuming the substitute price is not changing; nothing else is changing except the particular good 1 Substituting away from a more desired option to a less desired option o Demand Schedule and Curve Price is on y axis; quantity is on x axis Curve should have downward slope (law of demand) o The Price Elasticity of Demand A measure of how much the quantity demanded of a good responds to a change in the price of that good Changes are measure in percentage terms Determinants are things that Demand tends to be more elastic (consumers are going to be more responsive in changes in prices when these conditions are met) The larger the number of close substitutes If the good is a luxury (vs. a necessity) The more narrowly defined the market/ the good (ex. “vanilla ice cream” vs “dessert”)
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The longer the time period
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