supply & demand

supply & demand - Demand and Supply 1 Demand Curve 1.1...

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Unformatted text preview: Demand and Supply 1 Demand Curve 1.1 De nition Graph of the quantity of the good consumers want to buy at di erent prices at a given point in time. The price is denoted P and the Quantity of the good consumers want to buy at that price is denoted Q D . Figure 1: Demand Curve 1.2 Shape Downward Sloping. Why? 1. substitution e ect as the price of a good rises ( ↑ P ), consumers would shift into other goods, lowering quantity demanded ↓ Q D 2. income e ect as the price of a good rises ( ↑ P ), consumer's real income falls 3. Buyers have a reservation price , the maximum they are willing to pay to acquire the good. A buyer will buy only when the market price is less than the maximum they are willing to pay. When the price of a good is high, there are fewer consumers that will buy because there are fewer consumers whose reservation price is greater than the market price. 1 2 Supply Curve 2.1 De nition Graph of the quantity of the good sellers want to sell at di erent prices at a given point in time.Graph of the quantity of the good sellers want to sell at di erent prices at a given point in time....
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This note was uploaded on 01/21/2009 for the course ECON 30121 taught by Professor Rosario during the Spring '09 term at UC Davis.

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supply & demand - Demand and Supply 1 Demand Curve 1.1...

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