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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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
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This note was uploaded on 04/01/2008 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at Wisconsin.

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

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