Ch03-7e[1] - DEMAND AND SUPPLY 3 CHAPTER Objectives After...

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DEMAND AND SUPPLY 3 CHAPTER
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Objectives After studying this chapter, you will be able to: Describe a competitive market and think about a price as an opportunity cost Explain the influences on demand Explain the influences on supply Explain how demand and supply determine prices and quantities bought and sold Use demand and supply to make predictions about changes in prices and quantities
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Slide, Rocket, Roller Coaster Some prices slide, some rocket, and some roller coaster. This chapter explains how prices are determined and how markets guide and coordinate choices.
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Markets and Prices A market is any arrangement that enables buyers and sellers to get information and do business with each other. A competitive market is a market that has many buyers and many sellers so no single buyer or seller can influence the price. The money price of a good is the amount of money needed to buy it. The relative price of a good—the ratio of its money price to the money price of the next best alternative good—is its opportunity cost .
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Demand If you demand something, then you: Want it, Can afford it, and Have made a definite plan to buy it. Wants are the unlimited desires or wishes people have for goods and services. Demand reflects a decision about which wants to satisfy. The quantity demanded of a good or service is the amount that consumers plan to buy during a particular time period, and at a particular price.
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Demand What Determines Buying Plans? The amount of any particular good or service that consumers plan to buy is influenced by 1. The price of the good, 2. The prices of other goods, 3. Expected future prices, 4. Income, 5. Population, and 6. Preferences.
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Demand The Law of Demand The law of demand states: Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded. The law of demand results from a substitution effect an income effect
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Demand The Law of Demand The law of demand states: Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded. The law of demand results from a substitution effect an income effect
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Demand Substitution effect —when the relative price (opportunity cost) of a good or service rises, people seek substitutes for it, so the quantity demanded decreases. Income effect —when the price of a good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded decreases.
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Demand Demand Curve and Demand Schedule The term demand refers to the entire relationship between the price of the good and quantity demanded of the good. A demand curve shows the relationship between the quantity demanded of a good and its price when all other influences on consumers’ planned purchases remain the same.
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Demand Figure 3.1 shows a demand curve for recordable compact discs (CD-Rs).
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