Chapter3 - 9/29/2009 1 Chapter 3 Chapter 3 Supply and...

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Unformatted text preview: 9/29/2009 1 Chapter 3 Chapter 3 Supply and Demand Supply and Demand What, How, and For Whom? What, How, and For Whom? WHAT: Which good will be produced? How much of each? HOW: Which technology? Which resources are used? FOR WHOM: How to distribute? 9/29/2009 2 Central Planning v. Market Central Planning Decisions by a few individuals or small groups The Market Buyers and sellers signal wants and costs Interaction of supply and demand answer the three basic questions ________ economies use both the market & central planning The Market The Market Market: a group of buyers and sellers of a particular product. Two sides: Buyers want to benefit from the good Sellers want to make a profit Market price balances The value buyers derive from the good The cost to produce one more unit of the good 9/29/2009 3 Demand Demand You demand something if You want it. You can afford it. You have a definite plan to buy it. Quantity Demanded ( Q d ): The quantity consumers demand at a specific price. Demand: the entire relationship between price and quantity demanded. Demand Demand Demand curve is downward sloping Negative relationship between P and Q The Law of Demand: All else equal, the higher is the price of a good, the smaller is the quantity demanded. Two interpretations Horizontal Vertical Q P Demand for Pizzas (000s of slices/day) P = 6 0.25Q (Q in 000s) 9/29/2009 4 Demand Slopes Downward Demand Slopes Downward Higher prices drive some buyers out of the market. Reservation price : the highest price an individual is willing to pay for a good....
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This note was uploaded on 02/07/2010 for the course BILD 661039 taught by Professor Mel during the Fall '09 term at UCSB.

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Chapter3 - 9/29/2009 1 Chapter 3 Chapter 3 Supply and...

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