ch02 - Microeconomics, 2 Microeconomics, 2 nd nd Edition...

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Unformatted text preview: Microeconomics, 2 Microeconomics, 2 nd nd Edition Edition David Besanko and Ron Braeutigam David Besanko and Ron Braeutigam Chapter 2: Demand and Supply Analysis Chapter 2: Demand and Supply Analysis 2 Why? Why? Weather Weather Asian economic boom Asian economic boom Example: U.S. market for corn Example: U.S. market for corn in 1995 in 1995 Historical price: $2.00 per bushel Historical price: $2.00 per bushel 1995: prices rose to $2.70 per bushel 1995: prices rose to $2.70 per bushel Long term contracts based on this price Long term contracts based on this price 1996: prices rise to $5.00 per bushel 1996: prices rise to $5.00 per bushel Litigation to annul contracts Litigation to annul contracts 3 Example: U.S. market for corn Example: U.S. market for corn in 1995 in 1995 (contd) (contd) 1998: prices return to $2.00 per bushel 1998: prices return to $2.00 per bushel Why? Increased acreage Asian economic cool-down 4 are those with sellers and buyers that are small and numerous enough that they take the market price as given when they decide how much to buy and sell. 5 tells us how the quantity of a good demanded by the sum of all consumers in the market depends on various factors. Q d = (Q,p,p o, I,) Plots the aggregate quantity of a good that consumers are willing to buy at different prices, holding constant other demand drivers such as prices of other goods, consumer income, quality. Q d= Q(p) 6 Quantity (millions of automobiles per year) Price (thousands of dollars) 53 5.3 Quantity (millions of automobiles per year) 53 5.3 The Demand for New Automobiles in The United States 7 Quantity (millions of automobiles per year) Price (thousands of dollars) Demand curve for automobiles in the United States 53 5.3 The Demand for New Automobiles in The United States 8 Note: Note: We always graph P on vertical axis and Q on horizontal axis, but we write demand as Q as a function of P If P is written as function of Q, it is called the inverse demand. Normal Form: Q d= 100-2P Inverse form: P = 50 - Q d /2 Markets defined by commodity, geography, time. 9 Empirical regularity Empirical regularity states that the quantity of a good demanded decreases when the price of this good increases. If the change increases the willingness of consumers to acquire the good, the demand curve shifts right The demand curve: shifts when factors other than own price change If the change decreases the willingness of consumers to acquire the good, the demand curve shifts left 10 10 A move...
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ch02 - Microeconomics, 2 Microeconomics, 2 nd nd Edition...

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