Chapter 3 [Compatibility Mode]

Chapter 3 [Compatibility Mode] - ECON 002 Introduction to...

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1 ECON 002 Introduction to Macroeconomics Chapter 3 Supply and Demand • Market • The economy ECON 002 Introduction to Macroeconomics Markets • Macroeconomic Markets • Microeconomic Markets ECON 002 Introduction to Macroeconomics Product and Resource Markets • Product market • Resource market
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2 ECON 002 Introduction to Macroeconomics Figure 1 The Circular Flow Model Flow of goods and resources •Resource market - Households sell resources - Firms buy resources to produce goods and services •Product Market - Firms sell goods and services to households Money flows - Firms – pay the resource owners - Households – receive income for resources (to buy goods and services ) ECON 002 Introduction to Macroeconomics Competition in Markets • Imperfectly competitive markets • Perfectly competitive markets (or just competitive markets) ECON 002 Introduction to Macroeconomics Using Supply and Demand • Supply and demand model • Perfect competition • To analyze a market, we need both, Supply and Demand
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3 ECON 002 Introduction to Macroeconomics Demand – Quantity Demanded • Quantity demanded – Implies a Choice – Is Hypothetical – Depends on Price ECON 002 Introduction to Macroeconomics The Law of Demand • When the price of a good rises and everything else remains the same , the quantity of the good demanded will fall Ceteris paribus assumption ECON 002 Introduction to Macroeconomics The Demand Schedule Demand schedule : • Example: Helen’s demand for Price of latte s Quantity of lattes demand ed $0.0 16 lattes. 0 1.00 14 2.00 12 3.00 10 4.00 8 5.00 6 6.00 4 • Notice that Helen’s preferences obey the Law of Demand.
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4 ECON 002 Introduction to Macroeconomics $4 00 $5.00 $6.00 Price of Lattes Helen’s Demand Schedule & Curve Price of lattes Quantity of lattes demanded $0.00 16 1.00 14 $0.00 $1.00 $2.00 $3.00 $4.00 05 1 0 1 5 Quantity of Lattes 2.00 12 3.00 10 4.00 8 5.00 6 6.00 4 ECON 002 Introduction to
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This note was uploaded on 05/25/2010 for the course ECON 2 taught by Professor Mahalingam during the Winter '10 term at UC Riverside.

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Chapter 3 [Compatibility Mode] - ECON 002 Introduction to...

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