Ch 4 Market Forces of Supply and Demand

Ch 4 Market Forces of Supply and Demand - Chapter Chapter 4...

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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Chapter 4 Market Forces of Supply & Demand
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Markets A market is a group of buyers and sellers of a particular good or service. Copyright © 2006 Nelson, a division of Thomson Canada Ltd. The terms supply and demand refer to the behavior of people as they interact with one another in markets.
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Buyers (consumers) determine demand . Sellers (firms, producers, suppliers) determine supply . Copyright © 2006 Nelson, a division of Thomson Canada Ltd.
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Market demand refers to the sum of all individual demands for a particular good or rvice. Copyright © 2006 Nelson, a division of Thomson Canada Ltd. service. Market supply refers to the sum of all individual supplies of a particular good or service.
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There are different types of market structures. A competitive market is one in which there are so many buyers and so many sellers that each has a negligible impact on the market price. Copyright © 2006 Nelson, a division of Thomson Canada Ltd. A perfectly competitive market: all goods are exactly the same buyers & sellers so numerous that no one can affect the market price – each is a price taker In this chapter, we assume markets are perfectly competitive.
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Demand Quantity demanded , Qd is the amount of a good or service that consumers are willing and able to buy at a given price, P. Copyright © 2006 Nelson, a division of Thomson Canada Ltd. When the price of a good increases, you buy less of that good. We say price and Qd are negatively related. As P b , Qd B
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The Law of Demand Other things being equal ( ceteris paribus) , Copyright © 2006 Nelson, a division of Thomson Canada Ltd. when the price of a good rises, the quantity demanded of that good falls.
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Other Determinants of Demand Income 1. When income increases and you buy more of a ood, this good is a ormal ood r if income Copyright © 2006 Nelson, a division of Thomson Canada Ltd. good, this good is a normal good (or if income falls and you buy less). 2. When income increases and you buy less of a good, this good is an inferior good (or if income falls and you buy more).
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Most goods are normal goods. Examples of inferior goods include Kraft Dinner (as your come increases, you don’t have to eat KD Copyright © 2006 Nelson, a division of Thomson Canada Ltd. income increases, you don’t have to eat KD anymore- you can afford steak) and bus rides (as income increases, you can take a cab or buy a car).
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1. If an increase in the price of one good leads to n increase in demand for another good (or vice Copyright © 2006 Nelson, a division of Thomson Canada Ltd. an increase in demand for another good (or vice versa), these goods are substitutes . Examples: Coke and Pepsi, satellite dishes and
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Ch 4 Market Forces of Supply and Demand - Chapter Chapter 4...

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