Chapter Three

Demand, Supply, and the Market Process

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The "Law of Demand" states there is an inverse $($negative$)$ relationship between price and the quantity demanded.

Consumers will usually purchase more tacos at higher prices than at lower prices, if other "Factors of Demand" remain the same.

If the price of bananas decreases, the demand for substitutes such as oranges and apples will usually decrease in the Product Market.

When consumer purchases of a good are highly responsive to changes in the price of the good, the demand is said to be relatively price inelastic.

For many consumers in the U$.$ S$.$ hamburgers and hot dogs are considered to be substitutes, but peanut butter and jelly are considered to be complements.

If Terri would be willing to pay up to $$50$ for a pair of jeans and she finds them on sale for $$20,$ then her purchase of those jeans would give her $$20$ in consumer surplus.

If the price of pizza rises in the Product Market then the Demand for pizza will fall.

A decrease in the incomes of consumers will typically cause the demand curve for new cars to decrease.

Ceteris paribus, an increase in the demand for coffee in the Product Market will cause the price of coffee to rise, and encourage producers to increase their output of coffee.

The "Law of Supply" states there is an inverse $($negative$)$ relationship between price and the quantity supplied.

A decrease in the price of lumber used to build houses in the construction industry will typically cause the supply curve for new houses to decrease.

Ceteris paribus, a decrease in the Supply of housing in the Product Market will cause the price of houses to fall, and encourage consumers to purchase more homes.

In a free market, if the market price for a particular product is below the equilibrium price, then the quantity demanded will be greater than the quantity supplied.

In a free market, if the market price for a particular product is above the equilibrium price, then the quantity supplied will be greater than the quantity demanded.