Demand and Supply

Demand and Supply - Temple University Department of...

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Department of Economics Fall 2010. Instructor: Ken Chesoli Chapter 3: Demand and Supply September 10th, 2010 AN IMPORTANT QUESTION: Have you ever wondered why, water, though being so crucial to our very existence costs almost nothing and yet, diamonds are so pricey, yet most of us, even all of us can live without a single piece of diamond? A competitive market is one that has many buyers and sellers, and no single buyer, or seller is able to influence the price of a good or a service. Producers/sellers would only be compelled to sell their products, if the price is high enough for them, to cover their opportunity cost. Consumers on the other hand, seek to buy products that are cheaper. Money price : In economics, this refers to the number of dollars that must be given in exchange for a good or a service. Opportunity Cost: is the highest valued alternative foregone. Say, if you buy a cup of coffee instead of a bottle of soda, then the opportunity cost of the cup of coffee is the bottle of soda. Relative Price is the ration of the two products that we are using to define the opportunity cost. Say a cup of coffee costs $1.00 and a bottle of soda costs 50 cents, and then we can say that the relative price of a cup of coffee is two bottles of soda. It follows therefore that relative price is an opportunity cost. In demand and supply, we use relative prices: when we predict that the price will fall, we do NOT mean the money price would fall, even though it might. We imply that relative price would. DEMAND
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This note was uploaded on 04/15/2011 for the course ECON 1101 taught by Professor Rappoport during the Fall '08 term at Temple.

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Demand and Supply - Temple University Department of...

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