3_Supply_Demand_and_Markets updated

3_Supply_Demand_and_Markets updated - Gas prices seen...

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DEMAND, SUPPLY AND MARKETS Where do prices come from? 1 “Gas prices seen spiking again in spring”; Associated Press, Jan 31, 2008
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OVERVIEW / Questions of the Day 2 Where do prices come from? How are they determined? What do we mean by a “market” How do we use supply and demand? G What motivates buyers or sellers? What is the “invisible hand”? What happens to the market when conditions change?
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MARKETS Demand and supply is an economic model, used to explain prices G Show where prices come from G Predict how they change Demand and supply, together, make up a market The model works best when G All goods are G There are so many individual buyers and sellers that 3
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Markets Determine Prices, So What? Q: Why do we care about the market ? A: Because markets 1. What 2. How to produce them? 3. How to allocate the goods/services Using a market mechanism is 4
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What is a Market? Demand and supply make up two sides of a MARKET A collection of buyers and sellers that, through their actions or potential interactions, determine the price of goods/services Any institution that facilitates the voluntary exchange of goods and services for other goods/services or money The institution through which buyers and sellers interact and engage in voluntary exchange Interactions between buyers and sellers that determine the price of good/service 5
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Market – Examples Any good or service where one group of people wish to provide/produce/sell the good and another group of people wish to buy the good makes a market Goods Market – food, clothes, CD’s, cars, tickets, etc Services Market – Resource Market – inputs to production Credit Market – borrowing/lending 6
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Market – Definition 7 Market definition – who is included and G This can be a subjective process You can examine the model from G From very broad to very narrow G Market for automobiles (cars and trucks, new and used) G Market for G Market for G Market for G Market for
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DEMAND All those All those interested or even potentially interested, whether households, firms or government Back to our basic question: G What to produce? How much of a good to produce? How many jet airplanes to produce each month? How many Boeing jet airplanes to produce each month? How many Boeing 787 jet airplanes to produce each month? 8
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Part of the answer lies with buyers – how much do they want exactly? What affects how much they want? G What could change in your life to induce you to buy more or less of a good/service than you do right now? 1. Price of the good/service 2. 3. 4. Price expectations by consumers 5. 6.
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This note was uploaded on 10/22/2010 for the course ECON 201 taught by Professor Baker during the Spring '07 term at University of Tennessee.

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3_Supply_Demand_and_Markets updated - Gas prices seen...

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