Understand how markets and the price mechanism function

9 important questions on Understand how markets and the price mechanism function

What is a price taker?

A price taker is a buyer or seller who accepts the market price. Buyers can't bargain for a lower price and sellers can't bargain for a higher price.

What is a demand schedule?

A demand schedule is a table that reports the quantity demanded at different prices, holding all else equal.

What is the demand curve plots?

One curve plots the quantity demanded at different prices. A demand curve plots the demand schedule.
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When two variables are negatively related

Two variables are negatively related if the variables move in opposite directions.

What is the willingness to pay?

Willingness to pay is the highest price that a buyer is willing to pay for an extra unit of a good.

What is the market demand curve?

Market demand curve is the sum of the individual demand curves of all potential buyers. It plots the relationship between the total quantity demanded and the market price, holding all else equal.

When the demand curve shifts?

The demand curve shifts only when the quantity demanded changes at a given price.

When two goods are substitutes?

Two goods are substitutes when a rise in the price of one leads to the rightward shift in the demand curve for the other.

When two goods are complements?

Two goods are complements when a fall in the price of one leads to a rightward shift in the demand curve for the other.

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