02 Demand and Supply- A First Look

02 Demand and Supply- A First Look - Demand & Supply: A...

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2/17/11 11:57 PM September 7, 2010: Markets and Competition: How do markets work? o A competitive market is one with so many buyers and sellers, each has a negligible effect on price o In a perfectly competitive market : all goods exactly the same (commodities) buyers & sellers are so numerous that no one can affect market price- each is a “price taker ”- has to take market price as is o in following discussion we will assume perfectly competitive market Demand o The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase o Law of demand : the claim that the quantity demanded of a good falls when the price of good rises and vice versa, other things equal - (hold all other variables constant). income effect : as prices of goods go down, purchasing power of income increases substitution effect : switch to alternative product; if Coke prices shoot up, people will switch to Pepsi The Demand Schedule
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02 Demand and Supply- A First Look - Demand & Supply: A...

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