Demand, Supply, Market Equilibrium

I) Demand

• definition: the quantity of a specific good that people are willing and able to buy during a specific period, given the choices available

- the lower the price the more of the thing they will consume

• market prices

- the prices charged for goods whether we buy them or not

- the market prices of goods and the amounts consumers purchase are negatively related

• demand prices

- reflects the relative values an individual subjectively places on having a but more or a bit less of a good

• Law of Demand:

- All else being equal, consumers buy more of a good during a given period the lower its relative price, and vice versa.

- the principle of diminishing marginal utility (satisfaction)

(i) the more you have of any good relative to other goods, the less you desire and are willing to pay for additional units of it

- income effect

(i) changes in consumption pattern arising because price changes also change the purchasing power of money incomes

(ii) can be positive, negative, or zero

- the all-else-being-equal (Ceteris Paribus) assumption

(i) all influences on consumption of a good other than its own price are assumed constant in deriving the law of demand

• Individuals’ Demand Curves

- definition: depicts the max quantities of a good that given individuals are willing and able to purchase at various prices during a given period, all else assumed equal

- reflects the max price people are willing to pay for an additional unit of good, given their current consumption

- demand schedule

(i) a table that summarizes important points (price-quantity combinations) on a demand curve

• Market Demand Curves

- definition: the horizontal summation (summing the quantities per period that individuals buy at each price) of the individual demand curves of all potential buyers of a good

• Other Influences on Demand

- tastes and preferences

(i) preferences mirror our perceptions of the desirability of goods

- income and its distribution

(i) demands for...