Chapter 4 Extensions of Supply and Demand analysis

Chapter 4 Extensions of Supply and Demand analysis -...

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Chapter 4 Extensions of Supply and Demand analysis - Price Systems and Markets o An economic system in which relative prices are constantly changing to reflect changes in supply and demand for different commodities o Prices are signals to everyone within the system as to what is scarce or abundant o In a market, costs related to exchanging goods are transaction costs - Changes in demand o Increase demand …. .increase price and quantity o Decrease demand…. .decrease price and quantity o Increase supply….decrease price and increase quantity o Decrease supply….increase price and decrease quantity - The rationing function of prices o Prices are indicators of relative scarcity o An equilibrium price clears the market o Price in effect rations a good to demanders who are willing to pay the highest price Methods of Nonprice rationing First come first serve Political power Physical force Rationing by random assignment Rationing by a coupon o The essential role of rationing- once scarcity arises there has to be some method to
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This note was uploaded on 05/17/2010 for the course BIO 111 taught by Professor Osikanlu during the Spring '09 term at Moraine Valley Community College.

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Chapter 4 Extensions of Supply and Demand analysis -...

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