2010 post-3

# 2010 post-3 - Supply and Demand I. Markets a set of rules...

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Supply and Demand I. Markets – a set of rules for the negotiation of exchange between buyers and sellers. Prices communicate market conditions . II. Demand Demand compares the quantity demanded (q d for individuals, Q d for a market) and the price of a product. 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 = MB q d \$5.00 0 \$3.00 1 \$2.00 2 \$1.50 3 \$1.20 4 \$1.00 5

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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 (equals market MB). 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 g/s 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).
III. Shifts in the Demand Curve . A. Prices of Related Goods 1. Substitutes Example: If the price of Pepsi doubles, then some (not all) people ma switch from buying Pepsi to buying Coke (Pepsi and Coke are substitutes). Thus, whatever the going price of Coke, there will be a greater quantity demanded for Coke. Since there is a greater Q

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## This note was uploaded on 03/31/2008 for the course ECON 2010 taught by Professor Mertens,wi during the Spring '07 term at Colorado.

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2010 post-3 - Supply and Demand I. Markets a set of rules...

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