FIGURE L3-1
LECTURE NOTES FOR CHAPTER 3
FIGURE L3-1
DEFINITION:
A MARKET consists of all actual or potential buyers and sellers of a particular item and can be local, regional, national, or international.
DEFINITION
DEMAND is a relation showing the quantity of a good that buyers are willing and able to buy at various prices during a given period of time, other things constant.
DEFINITION
A DEMAND CURVE is a curve showing the quantities of a particular good (or service) demanded at various possible prices during a given time period, other things constant.
Demand function:
QD = f (P)
P is the independent variable.
Q is the dependent variable.
LAW OF DEMAND:
The quantity of a good demanded during a given period of time is inversely related to its price, all other things constant.
Effects of a change in price on quantity demanded:
1. Substitution effect
2. Income effect
More general demand function:
QD = f (P, ...)
FIGURE L3-2
Goods can be related to each other as:
1. Substitutes
If P of other good increases, demand for first good increases.
2. Complements
If P of other good increases, demand for the first good decreases.
DEFINITION:
SUPPLY is a relation showing the quantities of a good sellers are willing and able to sell at various prices during a given period of time, other things constant.
In the lectures, unless specifially indicated otherwise, we will assume that the sellers are firms which produce the good or sevice.
FIGURE L3-3
LAW OF SUPPLY:
The quantity of a product supplied in a given time period is usually directly related to its price, other things constant.
FIGURE L3-4
FIGURE L3-5
FIGURE L3-6
DEFINITION:
EQUILIBRIUM is a condition in which there are no inherent forces that produce change.
FIGURE L3-7
FIGURE L3-8
DEFINITION:
MARKET POWER is the ability to significantly affect the price at which a market participant sells or buys a good.