L2 - Economics 101:Principles of Microeconomics Professor...

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1 Economics 101:Principles of Microeconomics Professor Jo Hertel Please note updated TA assignments Lecture 2: The first model – demand and supply Building demand and supply Short recap: the demand curve Building the supply curve Market equilibrium Application: oil prices in January ‘06
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2 Recap: Demand for used textbooks The demand curve is derived from individuals’ willingness to pay $25 Darren $35 Claudia $10 Edwina $45 Brad $59 Aleisha Price offered # of books demanded 1 2 3 4 5 59 45 35 25 10 Willingness to pay
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3 The demand for used textbooks (3) An individual’s willingness to pay depends on his preferences, income, the price of related goods... Price offered # of books demanded 1 2 3 4 5 59 45 35 25 10 $33 Darren $43 Claudia $18 Edwina $53 Brad $67 Aleisha Willingness to pay after an increase in the price of new books
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4 The demand curve - summary The demand curve shows the quantities demanded in a given market as the price (and nothing else!) changes. When other things (particularly income , prices of related goods, expectations or preferences) change, the model changes and the demand curve shifts . price quantity price quantity 3 9 11 25
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5 The supply curve The supply curve is a model of quantities offered in a given market and prices in that market. That is, we only look at how quantities offered change with price – all other factors influencing supply are held constant! The supply curve is derived from individuals’ (or firms’) costs
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6 Textbook market continued – the supply curve There are also 5 people in this market who are willing to sell their textbooks: At $25 per textbook, Donna is exactly indifferent between selling her book or not (though we always assume that she sells in this case). Because we assume that choices are optimal, she will sell at any price > $25.
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