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2. Demand
Quantity Demanded: amount of good buyers are willing and able to buy
This is influenced by:
1) Price: As Price increases, quantity demanded goes down
As Price decreases, quantity demanded goes up
2) Income: Income increases, people increase quantity demanded for normal goods and
decrease quantity demanded for inferior goods (and vice versa)
3) Price of related goods
o Substitutes: ex. = Coke vs. Pepsi; Playstation 3 vs. Xbox 360
o Compliments: ex. = TV + VCR; Steak + BBQ Sauce
4) Tastes
5) Expectations: future prices or future income
o Example: Tennis gear is typically cheaper in the winter when it is not being
played
Law of Demand: other things being equal (ceteris paribus), the quantity demanded of a good
falls as the price of the good rises
Demand Schedule
Example
P Q
.05 1000
.10 800
.15 600
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Demand Curve
Example
3. Supply
Quantity Supplied: amount of a good that a supplier is able and willing to sell
This is influenced by:
1) Price
2) Input prices
3) Technology
4) Expectations
Law of Supply: other things equal (ceteris paribus), the quantity supplied of a good rises as the
price of a good rises
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4. Equilibrium
Equilibrium Price: price for which Qs = Qd
Equilibrium Quantity: quantity that corresponds to the equilibrium price