econ ch 3 outline - Kristin Chen CH 3 Supply Demand 1...

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Kristin Chen CH 3 Supply & Demand 1. Supply and Demand: A Model of a Competitive Market a. Competitive market = market in which there are many buyers and sellers of the same good or service i. No individuals action have a noticeable effect on the price at which the good or service is sold ii. Supply & demand model = model of how a competitive market works 1. Demand curve 2. Supply curve 3. Set of factors that cause the demand curve or supply curve to shift 4. Equilibrium price 5. Way the equilibrium price changes when the supply or demand curve shifts 2. Demand Curve a. Demand schedule = shows how much of a good or service consumers will want to buy at different prices b. Demand curve = graphical representation of the demand schedule i. Usually slopes downward ii. Exceptions are called “Giffen goods” c. Quantity demanded = actual amount consumers are willing to buy at some specific price d. Law of demand = a higher price for a good, other things equal, leads people to demand a smaller quantity of the good e. Shift of the demand curve = change in the quantity demanded at any given price i. Increase = rightward shift; decrease = leftward shift ii. Reasons for shifts: (related goods, income, tastes, expectations) 1. Changes in the prices of related goods a. Substitute = a fall in the price of one of the goods makes a consumer less willing to buy the other good b.
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