EC201;FinalExamNotes

EC201;FinalExamNotes - Supply/Demand 23:42 DEMAND AND...

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Supply/Demand 23:42 DEMAND AND SUPPLY DEMAND Quantity demanded: the amount of a good that buyers are willing and able to purchase Law of demand: the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises Perfectly competitive market : 1) the goods offered for sale are exactly the same 2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price Demand Curve -DOWNWARD sloping -INCREASES in quantity demanded shifts curve RIGHT. -DECREASES in quantity demanded shifts curve LEFT. Things that can cause SHIFT (increase/decrease) in demand: Income: if you lose your job, the demand for a normal good decreases. If you get a raise, the demands for a normal good increases. A good is considered and inferior good if your demand increases when your income decreases. EX: An iPod could be considered a normal good that you would purchase when you’re making a good salary. However, say you lose your job, you’d most likely purchase an off-brand MP3 player, making the MP3 player and inferior good . Price of Related Goods: Goods are considered substitutes if the price of one good falling decreases the demand of the other good OR if the increase in price for one causes and increase in demand for the other. EX: Say the price of frozen yogurt falls. This will cause the demand for frozen yogurt to increase which will in turn cause the demand for ice cream to decrease. Two goods are considered complements if the decrease in price of one item leads to and increase in demand of the other OR if the increase in price of one leads to the decrease in demand for the other. EX: Say the price of hot dogs falls and thus the demand for hot dogs rises. This will in turn cause the demand for the complement, hot dug buns, to increase as well.
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Taste: If you like the taste of something, you will demand more of it.
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EC201;FinalExamNotes - Supply/Demand 23:42 DEMAND AND...

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