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Chelsea Katz1-31-13ECON200Market Supply & Demand Notes*All Simulations on Aplia!Demand:o Change in Quantity Demanded(MOVEMENT ALONG A DEMAND CURVE)(CAN ONLY BE CHANGED BY A CHANGE IN THE PRICE OF THE GOOD) vs. Change in Demand(RELATIONSHIP BTWN. PRICE & QUANTITY HAS NOT SHIFTED)(increase in demand= at every price, people want to buy more of the good; demand curve shifts to the right). (decrease in demand= at every price, people want to buy less of the good; demand curve shifts to the left).What causes an increase/decrease in demand?: income, Normal good= good for which other things being equal, an increase in income leads to an increase in demand, or decrease in income, leads to a decrease in demand.Inferior good= good for which, other things being equal, an increase in income leads to a decrease in demand, and a decrease in income leads to an increase in demand.Exceptions where income/demand move in opposite directions: bus tickets (income rises and demand decreases), generic prescriptions, used goods (thrift shops), motel rooms. - Changes in prices of other goods could change demand.Substitutes: when a rise in price of one good increases the demand for another good, the two goods are called substitutes. (ex: tea & coffee: if the price of tea goes down, some people would shift to tea from coffee, Pepsi & Coca-Cola).Complements: when a fall in the price of one good raises the demand for another good, the two goods are called complements. (ex: if price of DVD players go down, people would buy more DVDS & demand for DVDs would go up, or Peanut butter/jelly, bagels & cream cheese.)o Law of Demand: a claim, that other things being equal, the quantity demanded of a good falls when the price of the good rises. Tells us demand curve MUST be negatively sloped.  high prices=low demand, low prices=high demand. Ex: people use less gas when the price goes up. o Goods with “snob appeal” are example of violation of law of demand (designer clothes, etc.)o Goods that “seem” like violations of the law of demand: housing (prices of homes fell about 1/3 and records were set for fewest number of home sold indecades), b/c their expectations were that prices would drop even lower. - Changes in taste can lead to a change in demand.Supply:Bringing Supply & Demand


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UMD ECON 200 - Market Supply & Demand Notes

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