ECON 1123: CHAPTER 3

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ECON 1123
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competitive market
market in which there are many buyers and sellers of the same good or service
supply and demand model
used to describe the behavior of a competitive market
key elements of supply and demand model
1. demand curve 2. supply curve 3. factors that shift demand curve/ supply curve 4. market equilibrium, including equilibrium price/quantity 5. the way the market equilibrium changes when the supply or demand curve shifts
demand schedule
table that shows how much of a good or service consumers will want to buy at different prices
demand curve
graphical representation of the demand schedule shows the relationship between quantity demanded and price
law of demand
says that the higher the price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service
determinants of demand
1. change in price of related goods/services (substitutes & complements) 2. change in income 3. change in tastes 4. change in expectations 5. change in number of consumers
if A and B are substitutes and the price of B rises, demand for A...
increases
if A and B are substitutes and the price of B falls, demand for A...
decreases
if A and B are complements and the price of B rises, demand for A...
decreases
if A and B are complements and the price of B falls demand for A...
increases
if A is a normal good and income rises, demand for A...
increases
if A is a normal good and income falls, demand for A...
decreases
if A is an inferior good and income rises, demand for A...
decreases
if A is an inferior good and income falls, demand for A...
increases
if tastes change in favor of A, demand for A...
increases
if tastes change against A, demand for A...
decreases
if the price of A is expected to rise in the future, demand for A...
increases today
if the price of A is expected to fall in the future, demand for A...
decreases today
if A is a normal good and income is expected to rise in the future, demand for A...
may increase today
if A is a normal good and income is expected to fall in the future, demand for A...
may decrease today
if A is an inferior good and income is expected to rise in the future, demand for A...
may decrease today
if A is an inferior good and income is expected to fall in the future, demand for A...
may increase today
if the number of consumers of A rises, market demand for A...
increases
if the number of consumers of A falls, market demand for A...
decreases
supply curve
shows the relationship between quantity supplied and price
determinants of supply
1. change in input prices 2. change in the prices of related goods/services 3. change in technology 4. change in expectations 5. change in the number of producers
if the price of an inputed used to produce A rises, supply of A...
decreases
if the price of an input used to produce A falls, supply of A...
increases
if A and B are substitutes in production and the price of B rises, supply of A...
decreases
if A and B are substitutes in production and the price of B falls, supply of A...
increases
if A and B are complements in production and the price of B rises, supply of A...
increases
if A and B are complements in production and the price of B falls, supply of A..
decreases
if the technology used to produce A improves, supply of A...
increases
if the price of A is expected to rise in the future, supply of A...
decreases today
if the price of A is expected to fall in the future, supply of A...
increases today
if the number of producers of A rises, market supply of A...
increases
if the number of producers of A falls, market supply of A...
decreases
when demand increases and supply decreases, what happens to equilibrium price and quantity?
price rises but the change in quantity is ambiguous
wen demand decreases and supply increases, what happens to equilibrium price and quantity?
price falls but the change in quantity is ambiguous
when both demand and supply increase, what happens to equilibrium price and quantity?
quantity increases but change in price is ambiguous
when both demand and supply decrease, what happens to equilibrium price and quantity?
quantity decreases but change in price is ambiguous.

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