Lecture%203%20January%2026

Lecture%203%20January%2026 - Todays Agenda The Coordination...

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Today’s Agenda The Coordination Problem Demand Supply Equilibrium Price and Quantity
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Fundamental allocation problems any economic system must solve What goods and services should be produced? How should they be produced? For whom should they be produced? Guns Butter
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Social institutions for allocation decisions tradition central planning allocation by price in markets
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A major theme of this course: How a system of markets solves the problems of What How For Whom
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Coordination problem Why are shortages and surpluses so unusual? Rationing function of the price mechanism Variations in price balance supply and demand
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Demand Q D = total amount of a commodity all households wish to purchase per period desired purchases--amount buyers are willing (and able) to buy not amount actually purchased quantity per period stocks v. flows
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Determinants of Demand Population Income Tastes or preferences Price of the commodity Prices of related goods Expectations
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Substitutes in consumption Examples: tea and coffee Demand for a good in creases when the price of a substitute increases Complements in consumption Examples: cars and gasoline Demand for a good de creases when the price of a complement increases How prices of related goods prices affect demand
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Determinants of Demand Population Income Tastes or preferences Price of the commodity Prices of related goods Expectations
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Determinants of Demand Population Income Tastes or preferences Price of the commodity Prices of related goods Expectations
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Determinants of Demand Population Income Tastes or preferences Price of the commodity Prices of related goods Expectations How does Q D vary with P?
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My demand curve for Coke Zero Cans per day Total willingness to pay 0 1 2 3 4 5 6
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My demand curve for Coke Zero Cans per day Total willingness to pay 0 0 1 2 3 4 5 6
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My demand curve for Coke Zero Cans per day Total willingness to pay 0 0 1 $3.00 2 3 4 5 6
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My demand curve for Coke Zero Cans per day Total willingness to pay 0 0 1 $3.00 2 $5.00 3 4 5 6
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My demand curve for Coke Zero Cans per day Total willingness to pay 0 0 1 $3.00 2 $5.00 3 $6.50 4 5 6
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My demand curve for Coke Zero Cans per day Total willingness to pay 0 0 1 $3.00 2 $5.00 3 $6.50 4 $7.40 5 $8.00 6 $8.30
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My demand curve for Coke Zero Cans per day Total willingness to pay Marginal willingness to pay 0 0 1 $3.00 2 $5.00 3 $6.50 4 $7.40 5 $8.00 6 $8.30
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My demand curve for Coke Zero Cans per day Total willingness to pay Marginal willingness to pay 0 0 1 $3.00 $3.00 2 $5.00 3 $6.50 4 $7.40 5 $8.00 6 $8.30
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Lecture%203%20January%2026 - Todays Agenda The Coordination...

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