Chapter 4 AP Econx
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Transcript Chapter 4 AP Econx
Supply & Demand is really a theory on how
buyers and sellers interact with one another,
and how prices are determined
Econometrics:
can’t experiment with economics, so we
use data & try to control other factors
Organized or not, markets are a grouping of
buyers & sellers
We are going to assume in this chapter that
we have “competitive markets” meaning there
are many buyers & many sellers – each has a
very small impact on market price
Two characteristics:
1. Good being offered for sale are all the same
2. Buyers & sellers are so numerous no single
buyer can influence the market price
We’ll discuss other markets later such as
monopolies, oligopolies, etc…
Quantity Demanded = amount of a good that
buyers are willing and able to purchase
What is the biggest determinant of demand?
What is the relationship between price &
demand?
Law of Demand: Other things being equal,
the quantity demanded of a product is
negatively related to the price; if the price
rises, the quantity demanded falls
These are things that can shift Demand
1. Income
Normal Good vs. Inferior Good
2. Prices of Related Goods
Substitutes & Complements
3. Tastes
4. Future expectations
*** YOU MUST KNOW THESE ***
Market Demand is the sum of all individual
demands for a good/service
- They are summed horizontally
Fancy Latin term that means “other things
being equal”
Price changes cause a change in Quantity
Demanded while other determinants
(Income, Tastes, Related Goods,
Expectations) cause a change or shift in
Demand
Therefore, when price changes we move
along the demand curve, but other
determinants cause the entire curve to shift
at all prices
1.
2.
3.
4.
5.
The amount of a good willing to
be purchased at a given price
83%
The amount of a good willing to
be produced at a given price
The amount of a good willing to
be purchased if prices of that
good are kept constant
The amount of a good willing to
be purchased if income can vary
The relationship that exists
between price and demand at a
variety of purchases
13%
0%
1.
2.
0%
3.
4.
4%
5.
1.
2.
3.
4.
5.
Price
Demand
Supply
Quantity
Elasticity
74%
22%
4%
1.
2.
3.
0%
0%
4.
5.
1.
2.
3.
4.
5.
A change in the price of apples
grown in Washington state
A drastic reduction in the
incomes of people living in the
U.S.
An article in the NY Times
stating that an apple a day may
lead to cancer
A drastic increase in the
incomes of people living in the22%
U.S.
A hurricane that destroys all
apple orchards on the East
Coast
1.
65%
13%
0%
0%
2.
3.
4.
5.
1.
2.
3.
4.
5.
An increase in the price of
marshmallows will decrease the
demand for this good
An increase in consumer incomes
will decrease the demand for this
good
A decrease in consumer incomes
will decrease the demand for this
good
An increase in consumer incomes
will increase the quantity
demanded of this good
A change in income will have no
effect on the demand or quantity
0%
demanded of this good
1.
83%
4%
2.
3.
9%
4.
4%
5.