ch02 - Chapter 2 Demand and Supply Analysis 1 Chapter Two...

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Chapter 2 1 Demand and Supply Analysis
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2 Chapter Two Overview 1. Motivation – U.S. corn markets 1. Competitive Markets Defined 1. The Market Demand Curve 1. The Market Supply Curve 1. Equilibrium 6. Characterizing Demand and Supply – Elasticity 7. Back of the Envelope Techniques Chapter Two
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3 Motivations Example: U.S. Corn Market Historical price: $2.00 per bushel Why do prices vary so much? Changes in Supply and Demand conditions affects pattern of prices Prices fell below $2.00 per bushel Prices rose to $3.00 per bushel Chapter Two Prices rose above $5.00 per bushel Prices fell to $3.90 per bushel
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4 Motivations Example: U.S. Corn Market Chapter Two 2002-2003 Decrease in supply due to drought in the corn-growing states 2004-2005 Unexpectedly large U.S. corn crops 2006-2008 Changes in U.S. government policy Bubble years Increase in production costs due to oil price increases and rains and flooding wiped out corn crop 2008-2009 Weather conditions back to normal Economic Crisis
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5 Defined: Competitive Markets Competitive Markets are those with sellers and buyers that are small and numerous enough that they take the market price as given when they decide how much to buy and sell. Chapter Two
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6 The Market Demand Function The Market Demand Function tells us that the quantity of a good all consumers in the market are willing to buy is a function of various factors. Defined: Chapter Two
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7 Market Demand Derived Demand The part of demand for a good that is derived from the production and sale of other goods. Direct Demand The part of demand for a good that comes from the desire of buyers to directly consume the good itself. Chapter Two
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8 The Market Demand Curve The Market Demand Curve plots the aggregate quantity of a good that consumers are willing to buy at different prices, holding constant other demand drivers such as prices of other goods, consumer income, quality. Defined: Chapter Two
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9 The Law of Demand The Law of Demand states that the quantity of a good demanded decreases when the price of this good increases. Defined: Chapter Two
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Demand Curve Rule A move along the demand curve for a good can only be triggered by a change in the price of that good. Any change in another factor that affects the consumers’ willingness to pay for the good results in a shift in the demand curve for the good. Defined:
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This note was uploaded on 09/15/2011 for the course ECON 300 taught by Professor Zh during the Spring '11 term at SUNY Albany.

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ch02 - Chapter 2 Demand and Supply Analysis 1 Chapter Two...

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