Download Chapter 3 Demand, Supply, and Equilibrium


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
decreases.
◦ Inverse relationship between price (p) and quantity
(q).
◦ 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
substitutes.

Downward slope indicates inverse
relationship between price and quantity
demanded.


Entire schedule shifts right (increase) or left
(decrease).
Caused by determinants of demand.
 Tastes –

Income

Market size –

Expectations –

Related Goods –

Substitutes – i.e. butter vs. margarine

Complements – go together i.e. peanut butter
and jelly.