quiz 3 macro

Perfectly competitive market

• market with large numbers of independently acting buyers and sellers of standardized product

• individual buyers and sellers have negligible impact on market price

Price is essential to markets

signal and incentive

price determined by supply and demand

demand

consumers’ willingness and ability to purchase a good at a given prices in a given time period

quantity demanded

the amount of the good or service that buyers are willing and able to purchase

The Law of Demand

idea that as price falls, quantity demanded of product will increase

demand curve is only considering…

changes in price (everything else is constant)

why is the demand curve downward sloping?

• income effect (price of product falls, people have more money)

• substitution effect

• law of diminishing marginal utility

changes in quantity demanded v changes in demand

changes in quantity demanded: on curve

change in demand: whole curve shifts (determinants of demand)

5 determinants of demand

income, price of related goods, consumer tastes and preferences, change in # of consumers in the market, changes in consumer expectations

income

normal goods (increase in income = increase in demand

inferior goods (increase in income = decrease in demand)

price of related goods

substitutes (decrease in price of substitutes = decrease in demand of og product)

complements (decrease in price of compliment = increase in demand of good)

tastes and preferences

change in tastes of all goods = higher demand at all prices

population/number of consumers in the market

change in population

changes in expectations

concerning prices, seasonal changes