Download Chapter 3 Demand, Supply, and Equilibrium

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A market is an institution or mechanism
which brings together buyers and sellers of
particular goods and services.
◦ May be local, national, or international.
◦ In order to be competitive, markets must have large
numbers of buyers and sellers.
A schedule which shows the various amount
of a product that consumers are willing, and
able to buy at different prices.
As price increases, quantity demanded
◦ Inverse relationship between price (p) and quantity
◦ Only works for normal goods not inferior ones.
Income effect – lower prices leave consumers
with more money left over, and ability to
purchase more.
Substitution effect – as the price of a good
goes up, consumers will switch over to
Downward slope indicates inverse
relationship between price and quantity
Entire schedule shifts right (increase) or left
Caused by determinants of demand.
 Tastes –
Market size –
Expectations –
Related Goods –
Substitutes – i.e. butter vs. margarine
Complements – go together i.e. peanut butter
and jelly.