Supply&Demand Slides - Intermediate Microeconomic...

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Intermediate Microeconomic Theory Supply and Demand Revisited
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DEMAND
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For individual, distinguish between Quantity demanded The amount of a good or service that a consumer is willing and able to purchase at a given price during a specified period of time, ceteris paribus. Demand schedule Table showing quantity demanded corresponding to different prices. Inverse demand curve Graph of the schedule data Demand equation Specifies the functional arguments of quantity demanded
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Demand Schedule - Example Qd/ t P/ unit 10 $1.00 8 $1.20 6 $1.40 4 $1.60 2 $1.80
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Demand Curve – Ex: linear Quantity/time P = slope*Q + vertical intercept = ( ΔP/ ΔQ)*Q + VI = -0.10*Q + 2
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Demand Curve – Ex: non-linear P/unit Qd/t $2.00 0 $1.67 2 $1.43 4 $1.25 6 $1.11 8 $1.00 10 Qd/t P = ((1/20)*Q + (1/2)) -1 ln(P) = - ln ((1/20)*Q + (1/2))
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Law of Demand As price increases, quantity demanded decreases, ceteris paribus. Implies a downward-sloping demand curve (negative slope) dQd/dP <0 (more appropriately, ∂Qd/∂P <0)
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Market Demand Curve: Horizontal Summation of Individual Demands P/unit Qd/t $2.00 0 $1.80 20 $1.60 40 $1.40 60 $1.20 80 $1.00 100 Q D /t P = 2 – 0.01*Q D Example: ten identical individuals …
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Demand Equation Q D = f(P|Ps, Pc, Y, U, E, Pop ) Ex: linear in own price, holding all else constant Q D = γ + β 1 P 1 <0) Ex: linear in own price, prices of related goods, and income , holding utility, population size and expectations constant Q D = α + β 1 P + β 2 Ps + β 3 Pc + β 4 Y
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