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Week #3 Study Guide

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GM545 Week 3 Quiz Study Guide

------------------------------------------------- TOC-A Chapters 3 & 5
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Given a demand function and a supply function, illustrate how the price mechanism, in response to changes in other demand or supply factors, leads to a new market equilibrium price and level of output. 1. -------------------------------------------------
Explain why the difference between the similar-sounding terms, quantity demanded and demand, is so critical to understanding the model of supply and demand. (P.58)

Changes in Demand * Note that a change in demand is different from a change in quantity demanded. * A change in demand occurs when the entire curve shifts. * This means that the quantity demanded at every given price will be different from what it was before.
Demand
* Demand refers to the quantity of products people are willing and able to purchase during some specific time period, all other relevant factors being held constant. * Price and quantity demanded have an inverse relationship known as the Law of Demand, depicted as a downward-sloping curve. * A market demand is the horizontal sum of all of the individual demand curves. * Demand curves shift when one or more of the determinants of demand change. * The determinants of demand are: consumer tastes and preferences, income, prices of substitutes and complements, the number of buyers in a market, and expectations about future prices, incomes, and product availability. * A shift of a demand curve is a change in demand. An increase in demand is a shift up and to the right. A decrease in demand is a shift down and to the left. * A change in quantity demanded occurs only when the price of a product changes, leading consumers to adjust their purchases along the existing demand curve.

Changes

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