Lecture 2_

Lecture 2_ - Supply and Demand: An Introduction LECTU RE...

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Supply and Demand: An Introduction LECTURE
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Slide 2 Why do diamonds cost more than water? Why are Some Goods Cheap and Others Expensive?
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Slide 3 Why are Some Goods Cheap and Others Expensive? Why do Gauguin’s paintings sell for more than JIA Juanli’s? Sept. 15, 2006 -- Christie's International said it may sell Paul Gauguin's painting ``L'Homme a la Hache'' for a record $45 million at a New York auction on Nov. 8. Nov. 4, 2005 -- Priced at RMB 176,000 by China Guardian Auctions Co., Ltd
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Slide 4 Why are Some Goods Cheap and Others Expensive? Why do Qi BaiShi’s ( h & & ) crabs sell for more than the real ones?
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Slide 5 Is it cost of production that determines prices (as Adam Smith thought)? Why are Some Goods Cheap and Others Expensive? Adam Smith (1723-1790) Scottish moral philosopher and a pioneer of political economy . Generally credited as being the “father” of modern economics. Key book: The Wealth of Nations (1776).
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Slide 6 Or is it willingness to pay that determines prices (as Stanley Jevons thought)? S. Jevons (1835-1882) English economist and logician. He launched the “Marginalist Revolution” (simultaneously with Carl Menger and Léon Walras), that gave birth to Neoclassical economics Why are Some Goods Cheap and Others Expensive?
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Slide 7 Cost of production? Value to the user? Alfred Marshall ( Principles of Economics , 1890) was the first to explain clearly how both costs and willingness to pay interact to determine market prices. Markets and Prices
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Slide 8 Markets and Prices The market for any good or service consists of all (actual or potential) buyers or sellers of that good or service.
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Slide 9 Markets and Prices How the interaction among buyers and sellers in markets determine the prices and quantities of the various goods and services traded in those markets?
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Slide 10 Demand Suppose you enjoy drinking coffee… Suppose the price of a regular coffee at Starbucks is $14 and at that price you drink 2 cups of coffee per day. Suppose the price drops to $10. How much coffee will you buy? (Will you buy more or fewer?) Suppose the price further drops to $6. How much will you buy? (More of fewer?) How much will you buy if the price goes to $20? (More or fewer?)
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Slide 11 The Demand Curve for Coffee Price Quantity of coffee cups purchased high low few many The red curve relates prices charged to quantities purchased. It is a demand curve . The demand curve tells us the quantity of a good that buyers wish to buy at each price .
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Slide 12 The Demand Curve The demand curve is the set of all price- quantity pairs for which buyers are satisfied. [“Satisfied” means being able to buy the amount they want to at any given price.]
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Slide 13 The Daily Demand Curve for Coffee in Starbucks Price ($ per cup) Quantity (100s of cups per day) 18 8 10 16 14 12 Demand Note that economists draw the graphs with price on the vertical and quantity on the horizontal axis.
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Slide 14 Horizontal Interpretation of the Demand Curve Price determines quantity demanded Price ($ per cup) 18 10 14 8 12 16 Demand If buyers face a price of $14/cup of coffee, they will wish to purchase 1,200 cups a day.
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Lecture 2_ - Supply and Demand: An Introduction LECTU RE...

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