mankiw-ch4 - Economics 1B03 Dr Fred Aswani Ch 1 Pg 1 1 4Ch...

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1 Economics 1B03 Dr. Fred Aswani 4 Ch. 4 - Supply and Demand Market = groups of buyers & sellers of a particular product/service Competitive Markets – a market with many buyers & sellers so that each has a very small influence on the price Most useful model for a competitive market is supply and demand Demand for a product = amount that buyers are willing and able to purchase Quantity demanded of a product = amount that buyers are willing & able to purchase at a particular price Main determinant of demand is the price of the product. Law of demand c other things held constant, as the price of a good increases, the quantity demanded will fall Other influences on demand: Ch. 1 Pg. 1
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1. Income – generally as income increases, we are able to buy more of most goods 4 normal good = demand for a good increases when incomes increase 4 inferior good = demand for a good decreases when incomes increase 2. Price of related goods Related goods come in 2 types: Substitutes = when goods are similar & can used as alternatives 4 when goods X and Y are substitutes, then when the price of X goes up, the demand for Y will increase e.g.Coke and Pepsi, butter and Margarine 4 you substitute away from the relatively more expensive good Complements = when goods are used together 4 When goods X and Y are complements, then when the price of X goes up, the demand for Y will decrease e.g. left shoe and right shoe, coffee and sugar 4 when the price of either good goes up, you buy less of each since they are used together Ch. 1 Pg. 2
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3. Tastes are a major determinant of the demand for products, but usually does not change much in the short run 4. Expectations When you expect the price of a good to go up in the future, you tend to increase your demand today (this is another example of the rule of substitution) You substitute away from the expected relatively more expensive future consumption
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mankiw-ch4 - Economics 1B03 Dr Fred Aswani Ch 1 Pg 1 1 4Ch...

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