PAM_2000_Fall_2008_Chapter_2 - Title: Money (Thats What I...

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1 • Title: Money (That’s What I Want) • Artist: Barrett Strong • Economic concepts: money as store of value; feasible set • Representative lyric: Money don't get everything it's true. What it don't get I can't use. I need money; that’s what I want PAM 200: Intermediate Microeconomics Prof. John Cawley Chapter 2: Supply and Demand
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2 Where We Are Consumer Theory Individual Demand Market Demand Theory of Production Costs of Production Perfect Competition Imperfect Competition: Monopoly Monopolistic Competition Oligopoly Prices General Equilibrium Market Imperfections Factor Markets Strategy Game Theory Today’s Outline • Demand and Supply – Plotting – Movement along vs. shifts of – Mathematical functions • Market Equilibrium • Shocking the Equilibrium – Disequilibrium outcomes – Price regulation: price floors and price ceilings – Quantity regulation: Import bans, quotas • When to use supply & demand model
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3 Quantity Demanded …is the amount of a good or service that consumers want to buy at a given price, holding constant other factors that affect demand What Determines Demand • Price of the good/service • Tastes / Preferences • Prices of complements and substitutes • Income • Information (e.g. health impacts)
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4 Demand Curve • Shows quantity demanded at each price, holding constant all other factors that affect purchases • Law of Demand : demand curve slopes down – Higher price implies fewer demanded A Demand Curve Price Q1 Demand curve D 1 Quantity Demanded 0 P1
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5 Aggregating Demand Curves p , $ per ton 50 Q , Tons of peaches per 10,000 people per year 0 183 Total demand for peaches Demand for canned peaches Demand for fruit cocktail Q c =18 Q =22 Q f =4 Example: Plotting Demand Curves, Summing Demand Curves
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6 Movement Along, and Shifts Of, the Demand Curve • Movement along the demand curve: Due solely to change in the price of the good; all else remained the same • Shift of the demand curve: Due to any factor other than price of the good Movement Along a Demand Curve Price Q1 Q2 Demand curve D 1 Q3 Quantity Demanded 0 P3 P2 P1
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7 A Shift of the Demand Curve Price Q1 Effect of rise in the price of a substitute D 1 D 2 Q2 0 P1 Quantity Demanded Movement Along Or Shifts Of the Demand Curve? • Homer raises price for elephant rides ( The Simpsons ) • Demand for pets after introduction of The Pill ( Gates of Heaven )
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8 Demand Function • Formally, mathematically, relates quantity demanded to price and other variables • Generically: Where: is quantity demanded is some function is the price of the good is income
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PAM_2000_Fall_2008_Chapter_2 - Title: Money (Thats What I...

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