Chapter 3Supply, Demand, and the Market ProcessThe demand curve- law of demandThere is a inverse (negative) relationship b/w price and quantity that buyers are willing to purchase-DOWNWARD SLOPING-as prices increase the quantity demand increaseConsumer SurplusDiff b/w the maximum amount a consumers are willing to pay and amount they pay-area below the demand curve and above the priceDemand vs. Quantity DemandedQuantity demanded is a movement along the curveThis is caused by a change in price of that good, RIGHT increase in quan dem, LEFT dec in quant demChange in demand curve shift of the actual curveCaused by change in anything other than the priceInc. in demand-curve shifts to RIGHT, dec in demand- shifts to LEFT! if the price fell there would be no demand change, the quantity would only increaseShifter of Demand1. change in consumer income2. change in number of consumers3. change in price4. change in expectations5. change in taste and preferenceThe supply curve-law of supply is the direct relationship b/w the price of good and amount that suppliers are willing produceUPWARD SLOPINGPrice increases…quantity supplied increasesProducer surplus is diff b/w the minimum price suppliers are willing to accept and price they actually receive Area above the supply curve but below the priceChange in the quantity supplied is the movement along the curveCaused by a change in price of the good, inc..to the right, dec…to the leftChange in supply is a shift of the actual curveCaused by anything but priceShifts in supply occur when1. a change in resources price2. change in technology3. change in politics and nature4. change in taxeselasticityinelastic is a change in quantity that is not sensitive in price (steep curve)elastic changes are sensitive to change in price (flatter curves)market equilibrium state in which conflicting forces of supply and demand intersect (balanced)this means its economically efficient (no excess supply or demand)changes in demand: price and quantity move in same directionchanges in supply: price moves opposite from quantitywhen they both change?Invisible hand principle-tendency of people to promote the economic well-being, accomplished through pricesFounded by adam
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