Lecturenotes3

# Lecturenotes3 - Econ 1 UCLA Dr Narag Lecture 3 Market –...

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Unformatted text preview: Econ 1 UCLA Dr. Narag Lecture 3 Market – An institution or mechanism that brings buyers (demanders, consumers), and sellers (suppliers, producers, firms, farms, fishermen, etc.) of particular resources together. A set of rules for the negotiation of exchange between buyers and sellers. This section will develop the building blocks of a market. To keep things simple initially, the market is assumed to consist of a large number of buyers and sellers, i.e. the wheat market. We will study less competitive markets at a later time. Demand – schedule that shows the quantities that consumers are willing and able to purchase at each alternative price, at a specific point in time. Law of Demand – there exists an inverse relationship between price (P) and quantity demanded (Q D ). Thus, if the P of a good falls, the Q D of the good rises and vice versa. Prices communicate market conditions . A. Individual Demand: compare prices and q d for an individual, holding all else constant. Example: Demand Schedule Alice’s desired pounds of chicken per week: Price q d \$5.00 0 \$3.00 1 \$2.00 2 \$1.50 3 \$1.20 4 \$1.00 5 Econ 1 Lecture 3 Dr. Narag 2 Demand Curve P 5 4 3 2 1 D 0 1 2 3 4 5 q There are actually two ways to interpret what the demand schedule and the demand curve show us. 1. They give the quantity of the g/s demanded at each possible price. 2. They show the maximum that an individual is willing to pay to purchase an extra amount. B. Market demand: gives the total Q d by all individuals at each price. Market demand is simply the sum of all individual demands. Example: Price Alice’s q d Bob’s q d Market Q d \$5.00 0 1 1 \$3.00 1 1.5 2.5 \$2.00 2 2.3 4.3 \$1.50 3 3.1 6.1 In all cases, as the price of a good/service rises the quantity demanded falls, and vice versa (all else constant). This is the Law of Demand , and it always holds true (we will discuss the theoretical possibility of violating the law of demand later in the course). Econ 1 Lecture 3 Dr. Narag 2 Demand Curve P 5 4 3 2 1 D 0 1 2 3 4 5 q There are actually two ways to interpret what the demand schedule and the demand curve show us. 1. They give the quantity of the g/s demanded at each possible price. 2. They show the maximum that an individual is willing to pay to purchase an extra amount. B. Market demand: gives the total Q d by all individuals at each price. Market demand is simply the sum of all individual demands. Example: Price Alice’s q d Bob’s q d Market Q d \$5.00 0 1 1 \$3.00 1 1.5 2.5 \$2.00 2 2.3 4.3 \$1.50 3 3.1 6.1 In all cases, as the price of a good/service rises the quantity demanded falls, and vice versa (all else constant). This is the Law of Demand , and it always holds true (we will discuss the theoretical possibility of violating the law of demand later in the course). Econ 1 Lecture 3 Dr. Narag 3 Why is Demand Downward Sloping?...
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Lecturenotes3 - Econ 1 UCLA Dr Narag Lecture 3 Market –...

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