Demand
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Demand. Desire, ability and willingness to buy a product. Demand Schedule. List that shows the quantity demanded at all prices that prevail in the market at any given time. Demand Curve. Graphic representation of demand schedule. Law of Demand. Relationship of demand and price

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Demand

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Demand

  • Desire, ability and willingness to buy a product


Demand Schedule

  • List that shows the quantity demanded at all prices that prevail in the market at any given time


Demand Curve

  • Graphic representation of demand schedule


Law of Demand

  • Relationship of demand and price

  • Varies inversely


Changes in Demand

  • Tastes

  • Price of related good

  • Expectation of future prices

  • Number of buyers in the market


Demand Elasticity

  • Indicates the extent to which changes in price cause changes in quantity demanded.


Small change in price causes a relatively large change in the quantity of demand.

Change in price causes a relatively smaller change in quantity demanded.

Elastic vs. Inelastic


Determinants of Demand Elasticity

  • Can the purchase be delayed?

  • Are adequate substitutes available?

  • Does the purchase use a large portion of income?


Supply

  • A schedule of quantities that people will sell at different prices


Supply Schedule

  • The quantity offer at each and every possible market price


Supply Curve

  • Graphic representation of supply schedule


Law of Supply

  • The quantity supplied, or offered for sale, varies directly with its price


Changes in Supply

  • Change in supply of inputs

  • Productivity of workers

  • Technology

  • Number of sellers

  • Taxes, fees, subsidies

  • Expectations

  • Government regulation


Equilibrium

  • Supply equals demand

  • No shortage

  • No surplus


Aggregate Demand

  • The total value of real GDP that all sectors of the economy are willing to purchase at various price levels


Aggregate Demand

  • Real Balance Effect

    • Buy more as price declines

  • Interest Rate Effect

    • Rise or fall in rates

  • Foreign Purchase Effect

    • Effect on net exports


Aggregate Supply

  • The amount of real output or real GDP, that will be made available by sellers at various price levels.


Long-Run Aggregate Supply Curve

  • Full Employment 5%

  • Output is independent of prices


Short-Run Aggregate Supply Curve

  • Economy operates below full employment GDP in short run

  • Shape- Business firms will supply increasing amounts of output as prices rise.

  • Can operate beyond full employment GDP in short run


Say’s Law

  • Jean Baptiste Say

  • Supply creates its own demand


Keynes

  • Below full employment

  • Full employment

  • Above full employment


Disequilibrium

  • Aggregate demand exceeds aggregate supply

    • Inventories decline

    • Business order more inventory

    • Increase land, labor, capital


Disequilibrium

  • Aggregate supply exceeds aggregate demand

    • Inventories rise

    • Retailers order less from manufacturers

    • Manufacturers produce less


Keynesian Fix for Disequalibrium

  • I volatile

  • G steps in and spends money


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