Week2_SupplyDemand

Week2_SupplyDemand - MARKET FORCES OF SUPPLY AND DEMAND...

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MARKET FORCES OF SUPPLY AND DEMAND
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STRUCTURE OF MARKETS A market is a group/gathering of buyers and sellers of a particular good or service. (There is a market for everything.) The buyers constitute the demand side, and the sellers constitute the supply side. Markets can take multiple forms. Some of them are highly organized – such as stock markets. Others are less so. (Physical proximity is not a necessity.) Markets with a large number of buyers and sellers are said to be competitively structured. (Unless otherwise noted, all markets you’re going to encounter in this course are perfectly competitive .)
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DEMAND The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase [at a given price]. There are a number of factors that affect consumption decisions. Preferences, income, and rival goods are only a few. Price, however, is the single most important one. The negative relationship between price and quantity demanded is called the Law of Demand : the price of a good rises, the quantity demanded of the good falls.
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DEMAND: INDIVIDUAL vs. MARKET The law of demand applies to both individuals and groups. We generally use a so-called demand schedule to show the negative relationship between prices and the quantity demanded by an individual. The quantity demanded in a market is the sum of the quantities demanded by all the buyers.
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Figure 1 Catherine’s Demand Schedule and Demand Curve Price of Ice-Cream Cone 0 2.50 2.00 1.50 1.00 0.50 1 2 3 4 5 6 7 8 9 10 11 Quantity of Ice-Cream Cones $3.00 12 1. A decrease in price ... 2. . .. increases quantity of cones demanded.
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The Market Demand Curve Price of Ice- Cream Cone Price of Ice- Cream Cone Price of Ice- Cream Cone 2.00 2.00 2.00 4 3 7 1.00 1.00 1.00 8 5 13 Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones Catherine’s Demand Nicholas’s Demand Market Demand + = When the price is $2.00, Catherine will demand 4 ice-cream cones. When the price is $2.00,
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Week2_SupplyDemand - MARKET FORCES OF SUPPLY AND DEMAND...

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