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Chap3 - Krugman and Wells Chapter 3 Steven J Haider EC201...

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Krugman Krugman and Wells and Wells Chapter 3 Chapter 3 Steven J. Haider EC201 Spring 2010
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EC201-3-p2 Why do we start here? Why do we start here? This chapter introduces one of our central models: “perfect competition” or “supply and demand” or a “competitive market.” This chapter quickly lays out the pieces, so we can start to use the model. Later chapters will develop the pieces in more detail. The model is relatively easy and it works for a large number of markets The key assumption: there are a large number of suppliers (/demanders), so that any one supplier (/demander) cannot affect the price Suppliers and demanders are “price takers” Model probably works well for coffee Model probably works poorly for computer operating systems We will discuss the coffee market throughout this chapter, following the book
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