blanchard_ch03

Opportunity cost is a relative price demand and

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Unformatted text preview: same. The higher the price of a good, other things remaining the same, the smaller is the quantity demanded—the law of demand. Demand depends on the prices of related goods (substitutes and complements), expected future prices, income, expected future income and credit, population, and preferences. ■ ■ Supply is the relationship between the quantity supplied of a good and its price when all other influences on selling plans remain the same. The higher the price of a good, other things remaining the same, the greater is the quantity supplied—the law of supply. At the equilibrium price, the quantity demanded equals the quantity supplied. At any price above equilibrium, there is a surplus and the price falls. At any price below equilibrium, there is a shortage and the price rises. Predicting Changes in Price and Quantity (pp. 66–71) ■ ■ Supply (pp. 60–63) ■ Supply depends on the prices of resources used to produce a good, the prices of related goods produced, expected future prices, the number of suppliers, technology, and the state of nature. ■ An increase in demand brings a rise in the price and an increase in the quantity supplied. A decrease in demand brings a fall in the price and a decrease in the quantity supplied. An increase in supply brings a fall in the price and an increase in the quantity demanded. A decrease in supply brings a rise in the price and a decrease in the quantity demanded. An increase in demand and an increase in supply bring an increased quantity but an uncertain price change. An increase in demand and a decrease in supply bring a higher price but an uncertain change in quantity. Key Figures Figure 3.1 Figure 3.3 Figure 3.4 The Demand Curve, 56 A Change in the Quantity Demanded Versus a Change in Demand, 59 The Supply Curve, 61 Figure 3.6 Figure 3.7 Figure 3.10 A Change in the Quantity Supplied Versus a Change in Supply, 63 Equilibrium, 64 The Effects of All the Possible Changes in Demand and Supply, 70 Key Terms change in demand, 56 change in supply, 61 change in the quantity demanded, 59 ch...
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This note was uploaded on 04/04/2012 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue.

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