Market: where buyers and sellers get together to trade

• Housing market (goods and services)

• Stocks (shares)

• Factor (factors of production)

• International markets (international currencies)

Demand: the quantity of a product which consumers are willing and able to buy

Quantity: numerical quantity of a product being demanded

Effective demand: by purchasing power, the purchaser has the money to pay for the product

Ineffective demand: do not have purchasing power

• Law of demand: states that as the price of product falls, the quantity demanded will increase

Based on the graph, we can see these trends:

• When the price goes up, there's a decrease in quantity demanded

• When price goes down, quantity demanded increases

Factors influencing demand (PINTE):

1. Income: the income of all consumers

   a. Income + demand have a positive relationship:

   • Increase in ability to pay equals increase in demand, If the ability to pay falls then less is demanded (direct relationship)

   • Inferior goods have a negative relationship (customers buy less, inverse relationship)

To increase demand:

• Income rises (normal goods)

• Price of substitution rises

• Price of complementary falls

• Encouraged buying

• Population likely to buy increases

To decrease demand:

• Income drops

• Substitution falls

• Compliments rises

• Buying discouraged

  

PINTE:

• Prices

• Income

• Number of buyers

• Taste/preference

• Expectations

Movement along the Demand curve:

• Rise in price = drop in demand

• Drop in price = increase in demand

A demand shift can shift:

• Left (decrease demand)

• Right (increase demand)

Based on the graph, we can tell that these changes occur in the economy:

• D2: how quantity demanded responds to a change in prices

• D1 and D2: shows how demand responds to a change in a non-price factor

Bounded rationality: theory that consumers have limited rational decision making driven by cognitive ability, time constraint, and imperfect information

• Profit: total revenue - total costs

• Status quo: overwhelming amount of choices

• Complementary goods: demand decreases, quality demand decreases

• Substitute goods: demand increases, quality demanded decreases

Basic rules of movement along the demand curve and what it means:

• decrease in price = expansion in demand = increase in quality demanded

• increase in price = contraction in demand = decrease in quantity demanded