Chapter 3

• Buyers —> Demand
• Sellers —> supply
• The demand side of the market

  • Quantity demanded
  • demanded schedule
  • demand curve
  • market demand
• The demand side of the market

  Price goes up, the quantity demand goes down

  Price goes down, the quantity demand goes up
• Quantity Demanded: the amount of a good or service that a consumer is willing and able to buy at a given price
• Demand schedule: A table showing the relationship between the price of a product and the quantity of product demanded
• Demand curve: a curve that shows the relationship between the price of a product and the quantity of the product demanded
• Market demand: the demand by all the consumers of a given good or service
• The law of demand: Holding everything else constant. When the price falls, the quantity demanded will increase. Vice versa.
• Change in quantity demand is caused by change in products price
• Change in demand

  • referring to the curve
  • need to draw a new demand curve to the left or right
• When demand increases, the demand curve shifts to the right
• When demand decreases, demand curve shifts to the left
• Change in quantity demanded:

  When the price goes up, we move up the curve and we’re gonna get lower quantity. When the price falls, we move down the curve and we get higher quantity
• Change in demand (what makes it shift):

  • income
  • prices of related goods (substitutes; complements)
  • tastes/ preferences
  • population and demographics; number of buyers
  • expected future prices
• Normal goods:

  Increase in income, normally the demand increases
• Inferior goods:

  are goods that are poorer quality that if we have more money, we won’t be buying a lot of this. Demand falls.

  but if we have less money, we substitute for the inferior goods
• Substitute goods:

  is a good that can be consumed in place of another good. For example, apples and oranges are substitutes.

  • The demand for a good (apples) increases, if the price of one id its substitutes (oranges) rises
  • the demand for a good (apples) decreases, if the price of one of its substitutes (oranges) fall
• Complement goods:

  goods that go together

  example, milk and cereal.

  • the demand for a good (milk) increases, if the price of one if its complements (cereal) falls
  • the demand for a good (milk) decreases, if the price of one of its complements (cereal) rises
• Number of buyers

  increase in buyers, increase in demand
• Taste/ preferences:

  taste/ preferences change when:

  • people become better informed
  • new goods become available
  • season/ trend/ fashion
• Taste/ preference example:

  when its not in fashion anymore, demand decreases
• expected future prices:

  a rise in the expected future price of a good, increases current demand for that good

  a fall in the expected future price of a good, decreases current demand for that good
• the law of supply:

  holding everything else constant

  • An increase in the price product causes an increase in the quantity supplied
  • a decrease in the price of a product causes a decrease in the quantity supplied