Lecture 6 - LECTURE 6 DETERMINATION OF THE MARKET PRICE In trade discussion price lies between opportunity cost of seller and buyer Now go deeper

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2010: LECTURE 6 1 LECTURE 6: DETERMINATION OF THE MARKET PRICE In trade discussion - price lies between opportunity cost of seller and buyer. Now go deeper. Mankiw: Chapter 4
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2010: LECTURE 6 2
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2010: LECTURE 6 3 Price is determined jointly by - eagerness of households wanting to buy - demand side. - eagerness of firms wanting to sell - supply side.
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2010: LECTURE 6 4 Competitive markets - price-taking behavior Demand side: Individual demand curve Market demand curve
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2010: LECTURE 6 5 COMPETITIVE MARKETS Standardized product - not a lot of quality difference between goods - wheat - soup cans - ring-binders. - shares of particular firm. Many buyers and sellers
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2010: LECTURE 6 6 Consequence : Price-taking E.g farmer selling wheat . Sees all other farmers selling at 1 ($ per bushel) - the market price. He knows that he is just one of many. If he raises his price, others will not raise their prices. If he lowers his price, others will not lower their prices. He cannot affect the market price or he takes the market price as given - price-taking.
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This note was uploaded on 10/29/2011 for the course ECON 2010 taught by Professor Mertens,wi during the Spring '07 term at Colorado.

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Lecture 6 - LECTURE 6 DETERMINATION OF THE MARKET PRICE In trade discussion price lies between opportunity cost of seller and buyer Now go deeper

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