Lecture Notes chapter 3

Lecture Notes chapter 3 - Supply and Demand Supply and...

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1 1 Supply and Demand ± Supply and demand is an economic model ² Designed to explain how prices are determined in certain types of markets ± What you will learn in this chapter ² How the model of supply and demand works and how to use it ² Strengths and limitations of model 2 Markets ± Specific location where buying and selling takes place, such as ² Supermarket or a flea market ± In economics, a market is not a place but rather ² A group of buyers and sellers with the potential to trade with each other ± Economy is a collection of individual markets ± Define and characterize the market or collection of markets 3 How Broadly Should We Define The Market ± Group things together ² Aggregation is the combining of a group of distinct things into a single whole ± Markets can be defined broadly or narrowly ² How broadly or narrowly markets are defined is one of the most important differences between Macroeconomics and Microeconomics 4 Defining Macroeconomic Markets ± Goods and services are aggregated to the highest levels ² Macro models lump all consumer goods into the single category…… ² Analyze all capital goods(??) as one market
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2 5 Defining Microeconomic Markets ± Markets are defined narrowly ² Focus on models that define much more specific commodities ± Always involves some aggregation ² The process stops before it reaches the highest level of generality 6 Product and Resource Markets ± Buyers and sellers in a market can be ² Households ² Business firms ² Government agencies ± Product Markets ² Goods and services are bought and sold ² Business firms are the…, households are the…. ± Resource Markets ² Resources are bought and sold ² Business firms are the…, households are the… 7 Competition in Markets ± In imperfectly competitive markets, individual buyers or sellers the price of the product ± In perfectly competitive markets (or just competitive markets), each buyer and seller takes the market price as a given ± Perfectly competitive markets have small buyers or sellers and the product is ……… ± Imperfectly competitive markets have just a few large buyers or sellers or else the product of each seller is unique in some way 8 Demand ± Quantity demanded of a good or service ² Number of units that all buyers in a market would choose to buy over a given time period, given the constraints they face ² Implies a choice ² Hypothetical ² Depends on …. .?
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3 9 The Law of Demand ± States that when the price of a good rises and everything else remains the same, the quantity of the good demanded will fall ² The words, “everything else remains the same” are important ± In the real world many variables change simultaneously, however….
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This note was uploaded on 03/27/2008 for the course ECON 102 taught by Professor Singerman during the Spring '08 term at Iowa State.

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Lecture Notes chapter 3 - Supply and Demand Supply and...

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