Economics 3: Demand, Supply and The Market System
Market: “Set of arrangements for the exchange of a good/service”
How markets determine the price of goods and the quantity sold and consumed:
Market demand: “consists of the total quantity demanded by each individual in the market”
Demand:
Demand: “The inverse relationship between the price of the good the quantity demanded in a
given time, ceteris paribus.” Note: Demand: POV Buyer
“As price increases, Demand decreases and vice versa”
A change in either price will affect the quantity demanded
Law of demand: “Buyers like low prices and dislike high prices, c.p.”
Example: Mad cow disease; Universities release study that if you eat beef, you can get mad cow
disease Demand decreases & prices decreases.
If beef price increase, the demand will decrease; If beef demand increase, the price will
decrease.
Law of demand: “More of a good will be bought the lowers its price, Less will be bought the
higher the price, Ceteris Paribus”
Ceteris Paribus: “All else equal” or “Everything else remains the same”
Example: Buying a house
Now: $150 for 1500 FT
Then: $100 for 2000 FT
Then: $200 for 1000 FT
, What happens to the demand curve if price increases?
Nothing Demand itself didn’t change because P1 and P2 was
already part of the curve
Shift Demand: Change in anything affecting buying decisions, other than price
Example: House
Change in price: Movement along the curve (Not shift)
Mortgage rate increases: Lower willingness to buy
Mortgage rate decreases: Increased willingness to buy
Related markets: Apartments & Houses
Apartment price goes up
Demand curve for houses shifts out/right
Normal good: “An increase in income causes an increase in demand & vice versa”
Inferior good: “ An increase in income causes the demand for that good to decrease”
Low budget item Ramen, Tuna
Income rises:
Apartment = Inferior good House = Normal Good
If expect house prices to rise tomorrow, buy more today.
Complementary goods: “Must be used in conjunction with product”
Example: Apartments & HOA, Gas & Cars
Market: “Set of arrangements for the exchange of a good/service”
How markets determine the price of goods and the quantity sold and consumed:
Market demand: “consists of the total quantity demanded by each individual in the market”
Demand:
Demand: “The inverse relationship between the price of the good the quantity demanded in a
given time, ceteris paribus.” Note: Demand: POV Buyer
“As price increases, Demand decreases and vice versa”
A change in either price will affect the quantity demanded
Law of demand: “Buyers like low prices and dislike high prices, c.p.”
Example: Mad cow disease; Universities release study that if you eat beef, you can get mad cow
disease Demand decreases & prices decreases.
If beef price increase, the demand will decrease; If beef demand increase, the price will
decrease.
Law of demand: “More of a good will be bought the lowers its price, Less will be bought the
higher the price, Ceteris Paribus”
Ceteris Paribus: “All else equal” or “Everything else remains the same”
Example: Buying a house
Now: $150 for 1500 FT
Then: $100 for 2000 FT
Then: $200 for 1000 FT
, What happens to the demand curve if price increases?
Nothing Demand itself didn’t change because P1 and P2 was
already part of the curve
Shift Demand: Change in anything affecting buying decisions, other than price
Example: House
Change in price: Movement along the curve (Not shift)
Mortgage rate increases: Lower willingness to buy
Mortgage rate decreases: Increased willingness to buy
Related markets: Apartments & Houses
Apartment price goes up
Demand curve for houses shifts out/right
Normal good: “An increase in income causes an increase in demand & vice versa”
Inferior good: “ An increase in income causes the demand for that good to decrease”
Low budget item Ramen, Tuna
Income rises:
Apartment = Inferior good House = Normal Good
If expect house prices to rise tomorrow, buy more today.
Complementary goods: “Must be used in conjunction with product”
Example: Apartments & HOA, Gas & Cars
