Macroeconomy Chapter 3 Notes

 Demand

As a group consumers determine the demand for a product

 

The quantity demanded is the amount of a particular good or service that buyers are willing and able to purchase at a given price.

 

The law of demand states that the lower (higher) the price, the higher (smaller) the quantity demanded, and all other things equal (ceteris paribus). If the price falls (goes up), the benefit of the good/service remains the same, but the opportunity cost falls (goes up).

 

The demand can be represented as a demand schedule or demand curve.

 

The demand curve illustrates the relationship between the quantity demanded and the price of the good, holding all of the other non-price determinants constant.

 

Cellphones(mils)	Price($)
30	180
60	160
90	140
120	120
150	100
180	80
210	60

 

 

If one of the non-price factors that determines demand changes the demand curve will shift.

The 5 most important non-price determinants of demand are

 

Preference: Toys

Price of related goods: Substitutes: toothpaste

   : Complements: Gasoline and automobile

 

Non-Price Determinants /= Changes in the price of the good

 

Incomes

-Normal goods: almost everything

-Inferior Goods: Nail polish

 

Expectations: increase in taxes on technology products

Number of Buyers: Increase/ decrease population

 

What happens when one of the non-price determinants changes?

If positive influence, demand curve increases

If negative influence, the demand curve decreases.

 

Shifts vs Movements

There is an important difference between a shift in the demand curve and a movement along the demand curve.

 

Shift: Change in the non-price determinant, increase/decrease in demand

Movement: change in price, increase/decrease in the quantity demanded

 

Summary

-A market is a group of buyers and sellers who trade.

-A competitive market exists if a large number of buyers and sellers trade standardized goods and services.

-Modeled using supply and demand

-Demand demonstrates consumers' highest willingness to pay for a given quantity.

-The law of demand states that the quantity demanded increases as the price decreases.

-The demand curve has a negative slope

-When one of the non-price determinants of demand changes, the entire demand curve shifts to the left or the right.