Demand, Supply and Market Equilibrium

Demand, Supply and Market Equilibrium - • Inferior Good o...

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Econ 4.3 Wednesday, January 27, 1999 Announcements: The first exam will be Monday, February 1. It will be multiple choice. Bring a #2 pencil. Lecture notes: Chapter 4: Demand, Supply and Market Equilibrium People use all of the resources that they have available to maximize satisfaction Consumers are utility maximizers Businesses want to make as much profit as survive (they try to findout what people want) In a perfectly competitive economy firms don't gain excess profits o Too much profit is a signal to other firms that this is a good area to invest in o Copyrights and Patents help protect companies Governments provide some goods and services that the market would never supply o IE: things people use without paying for (street lights) Law of Demand There is an inverse relationship between price and quantity purchased Demand Determinants o Price o Income o Wealth o Other Prices o Tastes, Preferences o Future Expectations Weekly Market Demand: Pizza
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Unformatted text preview: • Inferior Good o As income rises, you buy less of it o As income falls, you buy more of it • Normal Goods o As income rises, ceteris paribus, we buy more normal goods (entertainment) o As income falls, ceteris paribus, we buy less normal goods Law of Supply • There is a positive relationship between price and quantity offered for sale • As you expand your output, it is going to be more expensive • Supply Determinants o Price o Cost of Production Resources Technologies o Prices of Related Products Weekly Market Supply: Pizza Equilibrium • Place where sellers have no feeling that they are competing • When quantity of what people want to buy equals what firms want to produce Weekly Market Equilibrium: Pizza Equilibrium: Price = $7.50 / Quantity = 3000 Market Equilibrium: the price at which the market clears Market Disquilibrium: Price must rise to restore equilibrium...
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This note was uploaded on 02/21/2008 for the course ECON 4.3 taught by Professor Fox during the Spring '99 term at Penn State.

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Demand, Supply and Market Equilibrium - • Inferior Good o...

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