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Unformatted text preview: Chapter 3 Demand and Supply Preparation. The ideas introduced and discussed in this lecture note are • Quantity demanded. • Market demand curves. • Changes to quantities demanded. • Quantity supplied. • Market supply curves. • Changes to quantities supplied. • Changes to demand. • Changes to supply. • Market equilibrium price and quantity traded. • Changes to a market equilibrium. You should use the index of your textbook to review what your book has to say on these subjects before you come to class. Motivation. Almost every traded commodity has a market price. A chocolate bar trades for about $1. A mid-size car trades for about $20,000. Unskilled labor is bought and sold for about $6 per hour. How are these prices determined? Why are these prices not higher, or lower? And what makes these prices change from time to time? The economic importance of the answers to these questions cannot be overstated because markets and the prices that form within them have enormous implications 51 52 CHAPTER 3. DEMAND AND SUPPLY for every aspect of our economics lives. Think for a moment of the twentieth cen- tury. At the outset of the First World War in 1914 the greatest world powers were Russia, Germany, France, the British Empire, the Austro-Hungarian Empire, the Ottoman Empire and the United States. In many of these countries the economies still embodied feudal restrictions from the previous century that severely impeded change and growth. The dreadful carnage and upheavals of the War resulted by its end in 1918 in the collapse of many of these economies (the principal exception was the US economy, which grew apace during the War). Fundamental and irreversible changes resulted to both the political and economic systems of many countries. Par- ticularly, there initiated a great competition between two types of economies. One type of economy, called a mixed economy, relied primarily upon private ownership of resources and upon markets to allocate them. The other, called a command economy, relied primarily upon central governmental ownership of resources and upon govern- mental directives to allocate them. This competition first appeared with the rise of the communist Union of Soviet Sot Republics (USSR). After the Second World War (1939 to 1946) the competition intensified with command economies appearing in many other countries, such as the People’s Republic of China, Cuba, North Korea, Eastern Germany and Poland. By the 1950’s about half of the people in the world lived in command economies with the other half living in mixed economies. The ri- valry between the two types of economic systems was intense and was perhaps most obviously manifested by the long and dangerous forty-year period known as the Cold War. Yet, at the end of the twentieth century it was clear that the mixed economies had triumphed with much higher rates of growth and much higher standards of living for their peoples than had been achieved by the command economies. Now the onlyfor their peoples than had been achieved by the command economies....
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This note was uploaded on 03/01/2011 for the course ECO 182 taught by Professor Morgan during the Spring '08 term at SUNY Buffalo.
- Spring '08