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Demand

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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  1. Demand • Desire, ability and willingness to buy a product

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

  3. Demand Curve • Graphic representation of demand schedule

  4. Law of Demand • Relationship of demand and price • Varies inversely

  5. Changes in Demand • Tastes • Price of related good • Expectation of future prices • Number of buyers in the market

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

  7. 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

  8. Determinants of Demand Elasticity • Can the purchase be delayed? • Are adequate substitutes available? • Does the purchase use a large portion of income?

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

  10. Supply Schedule • The quantity offer at each and every possible market price

  11. Supply Curve • Graphic representation of supply schedule

  12. Law of Supply • The quantity supplied, or offered for sale, varies directly with its price

  13. Changes in Supply • Change in supply of inputs • Productivity of workers • Technology • Number of sellers • Taxes, fees, subsidies • Expectations • Government regulation

  14. Equilibrium • Supply equals demand • No shortage • No surplus

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

  16. 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

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

  18. Long-Run Aggregate Supply Curve • Full Employment 5% • Output is independent of prices

  19. 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

  20. Say’s Law • Jean Baptiste Say • Supply creates its own demand

  21. Keynes • Below full employment • Full employment • Above full employment

  22. Disequilibrium • Aggregate demand exceeds aggregate supply • Inventories decline • Business order more inventory • Increase land, labor, capital

  23. Disequilibrium • Aggregate supply exceeds aggregate demand • Inventories rise • Retailers order less from manufacturers • Manufacturers produce less

  24. Keynesian Fix for Disequalibrium • I volatile • G steps in and spends money

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