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Unformatted text preview: 1 Econ 1, Winter 2008 RATIKA NARAG, Ph.D. Lecture 3 Circular Flow of Economic Activity Shows how firms and households interact in the input and output markets Output market: goods/services are exchanged Input market: resources used to produce products, are exchanged LECTURE 3 Supply and Demand Model: Basics Competitive Market: many buyers/sellers of the same good/service Key: no individuals actions have a noticeable effect on the price LECTURE 3 Key Elements Demand/Supply curve Shifts in demand/supply curve Equilibrium price Shifts in demand/supply curve affect equilibrium price LECTURE 3 The Demand Curve Demand Schedule: Table depicting quantity demanded at different prices Demand Curve: Graph of the demand schedule; how much of a good/service is demanded at any given price Usually, slope downward LECTURE 3 Individual Demand: compare prices and demand for an individual, holding all else constant 3 $800 $1,800 1 $1,500 5 $500 4 $650 2 $1,000 Quantity Demanded Price 2 LECTURE 3 LECTURE 3 Interpretation of Demand Curve/Schedule Shows the quantity of the goods/services demanded at each possible price Shows the maximum that an individual is willing to pay to purchase an extra amount LECTURE 3 Market Demand Gives the total quantity demanded by all individuals at each price Market demand is simply the sum of all individual demands LECTURE 3 Example of Market Demand 6.1 3.1 3 $800 4.3 2.3 2 $1,000 2.5 1.5 1 $1,500 1 1 $1,800 Market Demand Obamas Demand Hillarys Demand Price LECTURE 3 Law of Demand Ceteris paribus, as prices rise, quantity demanded falls...
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This note was uploaded on 03/20/2008 for the course ECON 1 taught by Professor Nagata during the Fall '08 term at UCLA.
- Fall '08