EC 201 Chapter 3: EC 201- Chapter 3
Chapter 3: Demand, Supply, and Market Equilibrium
Markets
ā Markets bring together buyers (ādemandersā) and sellers (āsuppliers)
Demand
ā Schedule or a curve that shows various amounts of a product that consumers are willing
and able to purchase at each of a series of possible prices during a specified period of
time
ā Shows quantities of a product that will be purchased at various possible prices
ā Demand schedule: table of numbers showing the amounts of good or service buyers are
willing and able to purchase at various prices over a specified period of time
ā
ā If the price of corn were $5 per bushel, consumer would be willing and able to
buy 10 bushels per week
ā If the price were $4, the consumer would be willing and able to buy 20 bushels
per week
ā Law of Demand
ā Relationship between price and the quantity demanded
ā Inverse relationship between price and quantity demanded
ā Diminishing utility: as you consume more of something, you get less and less
utility
ā Income effect: lower price increases the purchasing power of a buyerās money
income
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ā Enabling the buyer to purchase more of the product than before
ā Substitution effect: at a lower price buyers have the incentive to substitute what
is now a less expensive product for other products that are now relatively more
expensive
ā Demand Curve
ā Downward slope
ā Quantity demanded on the horizontal axis
ā Price on the vertical axis
ā Relationship between price and quantity demanded is inverse (or negative)
ā Market Demand
ā
ā Changes in Demand
ā Price
ā Substitute good: can be used in place of another good
ā Price of X goes up, quantity demanded of Y goes up
ā Complementary good: one that is used together with another good
ā Price of X goes up, quantity demanded of Y goes down
ā Income
ā Rise in income causes an increase in demand
ā Normal goods: products whose demand varies directly with money
income
ā Inferior goods: goods whose demand varies inversely with money income
ā Number of Buyers
ā An increase in number of buyers in market is likely to increase demand
ā Decrease in number of buys will probably cause a decrease in demand
ā Tastes
ā A change that makes the product more desirable means that more of it will
be demanded at each price
ā Demand will increase; demand curve will shift rightward
ā Unfavorable change will decrease demand, shifting demand curve to the
left
ā Expectations
ā Gas prices are going up, going to get it before it goes up even more
ā Changes in Quantity Demanded
ā Shift of demand curve to the right (an increase in demand) or to the let (a decrease
in demand)
ā Change in quantity demanded- one point to another point
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Markets bring together buyers ( demanders ) and sellers ( suppliers) Schedule or a curve that shows various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time. Shows quantities of a product that will be purchased at various possible prices. Demand schedule: table of numbers showing the amounts of good or service buyers are willing and able to purchase at various prices over a specified period of time. If the price of corn were per bushel, consumer would be willing and able to buy 10 bushels per week. If the price were , the consumer would be willing and able to buy 20 bushels per week. Relationship between price and the quantity demanded. Inverse relationship between price and quantity demanded. Diminishing utility: as you consume more of something, you get less and less utility.
