MMEsupplydemand

MMEsupplydemand - 2011 Steven Tschantz Supply and Demand Steven Tschantz Problem Producers have product they want to sell Consumers want to buy How

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© 2011 - Steven Tschantz Supply and Demand Steven Tschantz 1/25/11 Problem Producers have product they want to sell. Consumers want to buy. How much will be sold and at what price? Model No one tells producers how much to sell or at what price. Nor does anyone tell consumers how much to buy or at what price. Producers and consumers decide for themselves and agree to transactions. In order to understand and predict the conditions of trade, we need to make some assumptions about the willingness of producers to sell, the willingness of consumers to buy, and the nature of the market in which they interact. The higher the price they can get the more producers might be expected to supply. The more that producers supply to a market the higher the costs they are likely to incur and so the higher the price they might be expected to ask. We describe the willingness of producers to sell by specifying the relation between the amount they sell and the price they get. This relation is described by a supply curve, a functional relation defined by price they are willing to accept as an increasing function of quantity supplied, or equivalently, defined by the quantity supplied as an increasing function of the price. Consumers, on the other hand, are likely to purchase less the higher the price they pay. The more that consumers buy the lower the price they can be expected to afford. We describe the willingness of consumers to buy by specifying the relation between the amount they buy and the price they pay. This relation is described by a demand curve, a functional relation defined by the price they are willing to pay as a decreasing function of the quantity demanded, or equivalently, defined by the quantity demanded as a decreasing function of price. Calling the supply and demand "curves" implies we have in mind prices and quantities that are continuously variable, or at
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This document was uploaded on 10/28/2011 for the course MATH 256 at Vanderbilt.

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MMEsupplydemand - 2011 Steven Tschantz Supply and Demand Steven Tschantz Problem Producers have product they want to sell Consumers want to buy How

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