chapter 2 demand, supply and market equilbrium

chapter 2 demand, supply and market equilbrium - Chapter 2...

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Chapter 2 Demand, Supply, & Market Equilibrium
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Product, Resource and Service Markets Product market Goods and services Firms – suppliers Households – buyers Rationing device: Price (P) Resource market Resources Firms – buyers Households – suppliers Rationing device: Wage (w) Money market Goods and services Investors – suppliers Borrowers – buyers Rationing device: interest rate International market Goods and services Firms – suppliers Households – buyers Rationing device: Exchange rate
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Demand, Supply, & Market Equilibrium Think about what the following events have in common? The price of orange juice rises in supermarkets, when a cold nap hits Florida. The price of hotel rooms in the Caribbean plummets, when the weather turns warm in New England? A war breaks out in the middle East, the price of gasoline rises. They all show the workings of supply and demand
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Demand We begin our study of markets by examining the behavior of buyers. • Quantity demanded ( Q d ) of any good is the Amount of a good or service consumers are willing & able to purchase during a given period of time Implies a Choice Households choose to buy – considering the opportunity cost of their decisions
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Demand • Six variables that influence Q d Price of good or service (P) Incomes of consumers (M) Prices of related goods & services (P ) Expected future price of product (P ) Number of consumers in market (N) Generalized demand function ( ) Tast e pat t erns of consumers ( , , , , , ) d R e Q f P M P P N =
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Graphing Demand Curves Change in quantity demanded Occurs when price changes Movement along demand curve Change in demand Occurs when one of the other variables, or determinants of demand , changes Demand curve shifts rightward or leftward
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The Law of Demand When the price of a good rises and everything else remains the same , the quantity of the good demanded will fall Ceteris paribus assumption many variables change simultaneously understand each variable separately we assume “ everything else remains the same understand how demand reacts to price a change in the price of a good causes a movement along the demand curve, ceteris paribus.
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The Demand Curve Number of Bottles per Month Price per Bottle A B $4.00 2.00 D 40,000 60,000 Figure 2 The Demand Curve – movement along the demand curve When the price is $4.00 per bottle, 40,000 bottles are demanded At $2.00 per bottle, 60,000 bottles are demanded
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chapter 2 demand, supply and market equilbrium - Chapter 2...

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