Continue... ECON (Ch 1-5)
Terms
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- Market
- A group of Buyers and sellers
- Competitive Markets
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1) Homogeneous goods
2) Many buyers and sellers - The Law of Demand
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----OTHER THINGS ARE EQUAL----The higher the price of a good the lower the quantity demanded.
(Visa Versa) - Demand Curve
- SLOPES DOWN- Graphical relationship between price(P)and Quantity demand(Q).
- Market Demand
- The sum of all individual demands for a good or service.
- Movement ALONG the demand curve. (Same as Supply curve)
- Change in the PRICE of a good leads to the change in quantity demanded of that good.
- Variables that shift DEMAND
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NOT PRICE!!
1) Income
2) Prices of related goods
3) Tastes and preferences
4) Expectations
5) Number of buyers - 1) Income
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A) Normal Good- a good for which an increase in income leads to an INCREASE in demand.
B) Inferior Good- a good for which and increase in income leads to a DECREASE in demand. - 2) Prices of related goods
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A) Substitutes- goods that can be used IN PLACE of one another. An INCREASE in price of one leads to the INCREASE in demand of the other.
B) Complements- goods used TOGETHER with one another. An INCREASE in the price of one leads to the DECREASE in demand of the other. - Quantity Supply
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The amount of a good that sellers are willing and able to produce.
(Supply Curve shifts UP!) - Law of Supply
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----OTHER THINGS EQUAL----
The HIGHER the price of a good, the HIGHER the quantity supplied. - Market Supply
- The sum of all supplies of all sellers at various prices.
- Input Prices
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A) HIGHER input Price
=>HIGHER production cost.
=>DECREASE supply
B) LOWER input price
=>LOWERS production cost.
=>INCREASE supply - Technology
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A) INCREASE in tech.
=>LOWERS production cost.
=>INCREASE supply
B) DECREASE in tech.
=>HIGHER production cost.
=>DECREASES supply - Equalibrium
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The price at which quantity supplied EQAULS quantity demanded. (Qs-Qd=Surplus)
(Qd-Qs=Shortage) - Price Elasticity of Demand
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A measure of how much quantity demand responds to a change in the price of a good.-----------------------
(% change in Q.Demanded divided by......
% change in Price) - Elastic Demand
- quantity demand responds SUBSTANTIALLY to change in price.(Luxuries)
- Inelastic Demand
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quantity demand respnds SLIGHTLY to change in price.
(Food,Gas) - Factors that influence price elasticity of demand.
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1) Availability of close substitutes.
a) Lots of suds.->Elastic
b) Few subs. -> Inelastic
2) Necessities vs. Luxuries
a) Necessities->Inelastic
b) Luxuries->Elastic
3) Time Horizon
a)more time after price change->
Demand Becomes ELASTIC - Prices of Elasticity of demand
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Greater than 1-> Elastic
Less than 1-> Inelastic (Price is ^ than demand)
If Equal to 1-> Unit Elastic - Total Revenue
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Price (P) X Quantity (Q)
Elastic(Different Dir.)
P^-TR(Down)
P(down)-TR^
Inelastic--(Same Direction)
P^-TR^
P(down)-TR(Down)