USC ECON 205 - Supply, Demand, and Markets

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ECON 205 1st Edition Lecture 1Outline of Current Lecture II. The Market is made of buyers and sellersIII. Supply + Demand cause changes in price and quantityCurrent LectureMarkets & Competition- Markets are usually competitiveo We assume all markets are perfectly competitiveo All participants are “price takers”o No one person affects the overall marketDemand- Price determines demand- Law of Demand- all else equal, quantity demand decreases when price increases- Measure demand with a demand scheduleo Demand schedule is the price vs. demand curveMarket Demand vs. Individual Demand- Market demand is the sum of quantities demanded by all buyers at each priceDemand Shifters- Curve shows how price affects quantity demanded- Non-price determiners of demand will shift curve- Factors of non-price determiners are…o Income Demand of normal good is positively related to income Demand for inferior good is negatively related to incomeo Price of related goods Increase in the price of one substitute good (goods that are the same as the original good in function and quality) will increase the demand for theoriginal good Increase in the price of a complement good (goods that enhance the function or quality of the original good) will decrease the demand for the original goodo Tastes Purely set by the ebb and flow of trendso Expectations What we think will happen next year affects decisions today i.e. if you predict a product to become more expensive later, buy more nowo Size of the market The number of buyers will shift the demand curveSupply- Quantity of goods produced- Law of supply- all else equal, supply increases as price

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