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Econ 202
Topic: McConnell & Brue - Chapter #3
Individual Markets: Demand and Supply
I. Market
An institution or mechanism that brings together buyers and sellers of particular goods and
services.
II. Demand
Quantities of a product or service which consumers are willing and able to take from a
market at different prices during a specific time period.
III. Law of Demand
An inverse relationship between price and quantity demanded.
IV. Demand Model
1. Tabular
Tabular Model
P/U
Qd
$5
10 units
4
20
3
35
2
55
1
80
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2. Graphic
V. Reasons for Law of Demand (or Downward Slope of Demand Curve)
1. Lower prices, consumers buy more -- income effect
2. More consumers at lower prices
3. Substitution of one good for another -- Substitution Effect
4. Diminishing marginal utility
5. Common sense
VI. Market Demand
The horizontal summation of all individual demands at each price.
Example
Quantity Demanded/Week
Total Quantity
Demanded/Week
P/U
Buyer #1
Buyer #2
Buyer #3
$5
10 units +
12 units +
8 units =
30 units
4
20 units +
23 units +
17 units =
60 units
3
35 units +
39 units +
26 units =
100 units
2
55 units +
60 units +
39 units =
154 units
1
80 units +
87 units +
54 units =
221 units
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Graphic Model
VII. Determinants of Demand
These are constant along a single demand curve. If these change, the demand curve will shift
to the left or right.
1. Consumer's tastes and preferences
2. The number of consumers in market
3. Money income of consumers (normal goods)
4. Prices of related goods
(1)
substitutes
(2)
complements
(3)
Independent
5. Consumer expectations concerning the future
(1)
Income
(2)
Future prices
(3)
Future taxes
(4)
Future product availability
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VIII. Change in Demand vs. Change in Quantity Demanded
1. Change in demand
(1) Shift in demand curve
(2) Caused by a change in one or more of the determinants of demand
2. Change in Quantity Demanded
(1) Refers to a movement along a single demand curve.
Qd = f(P)
Price increases; Quantity decreas