61152 - Demand, Supply and Market Equilibrium Demand...

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Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together, we have a market
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Demand The amount of a good or service that consumers are willing and able to purchase during a given period of time is called quantity demanded. We will simplify demand analysis by focusing on six critical factors that influence quantity demanded.
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Two Types of Demand Functions Generalized Demand Functions – which show how quantity demanded is influenced by the price of the product and five other factors. Ordinary Demand Functions – which focus on the relationship between price and quantity demanded, holding other factors constant.
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Generalized Demand Functions ) , , , , , ( N P T P M P f Q e R d =
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Nature of the Relationship All six jointly determine quantity demanded. If want individual effects, must hold others constant - ceteris paribus condition
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Price and Quantity Demanded ) , , , , , ( + + + - + - + - = N P T P M P f Q e or R or d Price and quantity demanded are inversely related. If price increases, holding other factors constant, quantity demanded decreases. This inverse relationship is often referred to as the Law of Demand.
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Demand and Income For normal goods, income and demand are
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61152 - Demand, Supply and Market Equilibrium Demand...

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