Chapter3_s

Chapter3_s - Chapter3 Chapter3 SupplyandDemand...

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Chapter 3 Chapter 3 Supply and Demand Supply and Demand
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What, How, and For Whom? What, How, and For Whom? WHAT: Which good will be produced? How much of each? HOW: Which technology? Which resources are used? FOR WHOM:   How to distribute?
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Central Planning v. Market Central Planning Decisions by a few  individuals or  small groups The Market Buyers and sellers  signal wants and  costs Interaction of supply and  demand answer the three  basic questions Mixed economies use both the market & central planning
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Buyers and Sellers in the Market Buyers and Sellers in the Market Market:   a group of buyers and sellers of a  particular product. Buyers and sellers have different motivations. Buyers want to benefit from the good Sellers want to make a profit Market price balances two forces Value buyers derive from the good Cost to produce one more unit of the good
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Perfectly Competitive Market Perfectly Competitive Market Everybody is a price taker!
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Demand Demand Quantity Demanded:   The quantity buyers  are willing and able to  purchase at a specific  price. Demand curve is  downward sloping Consumers buy less at  higher prices Consumers buy more at  lower prices $4 $2 8 16 Q P D Demand for Pizzas (000s of slices/day)
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Demand Slopes Downward Higher prices drive some buyers out of the  market Buyers value goods differently. Reservation price  the highest price an  individual is willing to pay for a good. Higher prices cause remaining buyers to  buy less.  Substitution Effect:    Buyers switch to  substitutes when price goes up. Income Effect:
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Chapter3_s - Chapter3 Chapter3 SupplyandDemand...

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