lecture 2 - Econ 103 5/29/2008 Supply and Demand;...

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Econ 103 Lecture 2 5/29/2008 Supply and Demand; Elasticity 1. Supply and Demand (a) Market: a group of buyers and sellers of a particular good or service. Competitive market: A market has many buyers and sellers that each has negligible impact on the market price. In another word, no single buyers or sellers can influence the market price. Example: Ice cream, pizza, meat A) Perfectly competitive markets Two characteristics: 1, the goods offered for sale are all exactly the same 2, the buyers and sellers are so numerous. They are price taker B) Monopolistic competition market Example: restaurants, clothing, shoes and service industries in large cities. Characteristics: 1, There are many producers and many consumers in a given market. 2, Consumers perceive that there are non-price differences among the competitors’ products 3, There are few barrier to enter and exit. 4, Producers have a degree of control over price. Monopoly: The only seller in a market and it sets the price (b) Demand Curve: The relationship between price and quantity demanded The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. The quantity demanded is negatively related to the price Market demand versus individual demand: Market demand: the sum of all the individual demands for a particular good or service Shifts in the demand curve: Increase in demand and decrease in demand
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Econ 103 Lecture 2 5/29/2008 The factors: (1) income, normal goods versus inferior goods (2) prices of related good, substitutes versus complements An increase in the price of complements reduces the demand, shifts the demand curve left. An increase in the price of a substitute product increase the demand, shifts the demand curve right. (3) tastes and preferences (4) expectations (5) number of buyers Case : (c) Supply curve : The relationship between price and quantity supplied The quantity supplied of any good or service is the amount that sellers are willing and able to sell. The quantity supplied is positively related to the price. Market supply versus individual supply Shifts in the supply curve: The factors: (1) input prices. The supply of a good is negatively related to the price of the inputs . Ice cream (2) Technology. By reducing firms’ cost, the advance in technology raised the supply of ice cream. (3) Expectations. (4) number of sellers
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Econ 103 Lecture 2 5/29/2008 (d) Equilibrium Excess supply: (surplus) Excess demand: ( shortage) Three steps to analyzing changes in equilibrium (a) a change in demand Example: tax on beer (b) a change in supply
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Econ 103 Lecture 2 5/29/2008 Example: subsidy (c) a change in both supply and demand Elasticity and its application Elasticity is to measure how much consumers respond to changes in price, quantity demanded and supplied. 1.
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This note was uploaded on 10/04/2008 for the course MACROECONO 101 taught by Professor No name during the Spring '08 term at Rutgers.

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lecture 2 - Econ 103 5/29/2008 Supply and Demand;...

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