slides_-_supply_and_demand

slides_-_supply_and_demand - Market supply Increasing...

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1 Supply and Demand Markets and Resource Allocation Equilibrium and Efficiency
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2 What is a market? Meeting place (?) for buyers and sellers Farmer’s market in Royal Oak eBay New York Stock Exchange American Economic Association annual meetings Stores Scalpers outside Breslin
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3 Well-organized markets Property rights Contract enforcement Lots of buyers and sellers Price taking behavior Good information About price About quality Low transactions costs
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4 Demand Marginal benefit, marginal utility, reservation price, demand price The buy decision Price < MB, buy it Price > MB, don’t buy it Consumer surplus = MB - price Market demand Diminshing marginal benefit
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5
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6 Supply Marginal cost, reservation price, supply price The sell decision Price < MC, sell it Price > MC, don’t sell it Producer’s or seller’s surplus = Price - MC
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Unformatted text preview: Market supply Increasing marginal costs 7 8 9 Equilibrium High prices lead to surpluses Quantity supplied exceeds quantity demanded Price falls Low prices lead to shortages Quantity demanded exceeds quantity supplied Price rises Market clearing price 10 Equilibrium Allocation of Resources What and how much is produced? Where supply equals demand How are the goods and services produced? By those sellers with the lowest supply prices Who gets the goods and services? Those demanders with the highest demand prices 11 12 Efficient Allocations Marginal benefit equals marginal cost Lowest cost production Highest value consumption Efficiency not equity...
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This note was uploaded on 04/15/2008 for the course ECON 201 taught by Professor C.liedholm during the Spring '07 term at Michigan State University.

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slides_-_supply_and_demand - Market supply Increasing...

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