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Unformatted text preview: Chapter 3 Supply and Demand: An Introduction Purpose: This chapter introduces supply and demand. As such, it becomes an indispensable part of the lessons relating to microeconomics. The chapter encourages understanding by providing technical or logical concepts reasons first then going back to apply these concepts to real world situations. Length: 30 pages Time required to read: Two hours. This is not a difficult chapter, but students will need to study the graphics and work the exercises. If they do this, three hours is not an unreasonable guess. Number of lectures required for understanding: Three 50 minute lectures. The material is not tediously difficult, but it must be presented step-by-step in order to help all students grasp the meaning and importance of supply and demand. Without this understanding, students will not be able to comprehend the following chapters . Summary: The chapter opens with two vignettes about New York City. The first deals with the citys food supply that operates very well without government regulation or interference. The second stems from the citys market for apartments to rent that is heavily regulated and subject to much abuse. Both markets attempt to answer the questions What? When? How? And For Whom? The market for food answers the questions by responding to supply and demand signals that come through the market. The rental housing market responds to regulated signals that come through the powers of government. A section that elaborates the questions What? When? How? and For whom? follows the introductory section. Answers as they might be formed in collective economies and answers formed in market economies are mentioned. A brief section uses somewhat technical language and relationships to explain supply and demand. The basic graphs are presented, but not related in a single S&D diagram. Buyers and sellers reservation prices drive the discussion. Basic S&D curves are explained using horizontal explanations (using a starting price to determine a quantity supplied or demanded) and vertical explanations (using a starting quantity as the basis for determining the correct price) for supplying or demanding that quantity. The two curves are combined to show market equilibrium. This concept is expanded to show excess supply and excess demand. The New York City rent controls are then brought back to help explain some of the things that happen in a market that must adhere to non-market regulations. Similar arguments are applied to a hypothetical market for pizza. A lengthy section is used to point out the difference between a change in the quantity demanded and a change in demand. Examples and figures are used to make the point clear. Complements and substitutes are explained, as are normal goods and inferior goods. The supply curve is given similar exhaustive treatment....
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