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ECON 1123: CHAPTER 3

competitive market
market in which there are many buyers and sellers of the same good or service
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supply and demand model
used to describe the behavior of a competitive market
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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
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demand schedule
table that shows how much of a good or service consumers will want to buy at different prices
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demand curve
graphical representation of the demand schedule shows the relationship between quantity demanded and price
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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
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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
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if A and B are substitutes and the price of B rises, demand for A...
increases
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if A and B are substitutes and the price of B falls, demand for A...
decreases
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if A and B are complements and the price of B rises, demand for A...
decreases
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if A and B are complements and the price of B falls demand for A...
increases
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if A is a normal good and income rises, demand for A...
increases
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if A is a normal good and income falls, demand for A...
decreases
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if A is an inferior good and income rises, demand for A...
decreases
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if A is an inferior good and income falls, demand for A...
increases
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if tastes change in favor of A, demand for A...
increases
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if tastes change against A, demand for A...
decreases
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if the price of A is expected to rise in the future, demand for A...
increases today
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if the price of A is expected to fall in the future, demand for A...
decreases today
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if A is a normal good and income is expected to rise in the future, demand for A...
may increase today
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if A is a normal good and income is expected to fall in the future, demand for A...
may decrease today
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if A is an inferior good and income is expected to rise in the future, demand for A...
may decrease today
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if A is an inferior good and income is expected to fall in the future, demand for A...
may increase today
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if the number of consumers of A rises, market demand for A...
increases
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if the number of consumers of A falls, market demand for A...
decreases
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supply curve
shows the relationship between quantity supplied and price
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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
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if the price of an inputed used to produce A rises, supply of A...
decreases
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if the price of an input used to produce A falls, supply of A...
increases
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if A and B are substitutes in production and the price of B rises, supply of A...
decreases
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if A and B are substitutes in production and the price of B falls, supply of A...
increases
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if A and B are complements in production and the price of B rises, supply of A...
increases
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if A and B are complements in production and the price of B falls, supply of A..
decreases
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if the technology used to produce A improves, supply of A...
increases
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if the price of A is expected to rise in the future, supply of A...
decreases today
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if the price of A is expected to fall in the future, supply of A...
increases today
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if the number of producers of A rises, market supply of A...
increases
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if the number of producers of A falls, market supply of A...
decreases
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when demand increases and supply decreases, what happens to equilibrium price and quantity?
price rises but the change in quantity is ambiguous
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wen demand decreases and supply increases, what happens to equilibrium price and quantity?
price falls but the change in quantity is ambiguous
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when both demand and supply increase, what happens to equilibrium price and quantity?
quantity increases but change in price is ambiguous
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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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