Macro 3 - Chapter 3: Basic Elements of Supply and Demand...

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Chapter 3: Basic Elements of Supply and Demand The Demand Schedule -There exists a definite relationship between the market price of a good and the quantity demanded of that good, other things held constant. -Law of downward-sloping demand: When the price of a commodity is raised, buyers tend to buy less of the commodity. Similarly, when the price is lowered, quantity demanded increases. -Quantity demanded tends to tell as price rises for two reasons: 1. Substitution effect, which occurs because a good becomes relatively more expensive when its price rises. 2. The income effect occurs when a price goes up, I find myself somewhat poorer than I was before Market Demand -The market demand represents the sum of all individual demands Factors Affecting the Demand Curve -Average income: As people’s income rises, they buy more things -Size of the market -Prices of related goods: Lower gasoline prices raises demand for cars -Tastes -Special Influences: Umbrella in Seattle, but not in Phoenix Shifts in Demand
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Macro 3 - Chapter 3: Basic Elements of Supply and Demand...

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