H03DemandAndSupply - 3 The Market Adam Smith (1723-1790)...

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1 The Market The Market ± Adam Smith (1723-1790) moral philosopher, pointed out virtues of market ± The Wealth of Nations ± “He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. . .., he intends only his own security; . .., he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.” 3 ± Goal --- construct a basic and powerful model that explains the determination of price and quantity purchased and produced ± model of demand and supply ± demand, supply, market equilibrium Demand and Supply Demand and Supply 3 ± demand --- the amount of a good people are willing and able to purchase ± quantity demanded --- the amount of a good people are willing and able to purchase at a given price, holding all other factors constant ± demand curve --- relationship between the quantity demanded of a good and the price of the good, holding all other factors constant Demand Curve 3
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2 Demand Curve Demand Curve Price Quantity Demanded 29 67 10 5 14 3 18 1 0 2 4 6 8 10 12 14 16 18 20 01234567891 0 Quantity Price D ± when price increases, the quantity demanded falls ± law of demand ± demand --- the amount of a good people are willing and able to purchase ± quantity demanded --- the amount of a good people are willing and able to purchase at a given price, holding all other factors constant ± demand curve --- relationship between the quantity demanded of a good and the price of the good, holding all other factors constant 3 Quantity Demanded Price D Shifting the Demand Curve Shifting the Demand Curve ± increase/decrease in demand refer to shifts of demand curve ± increase in demand ± rightward shift of demand curve ± desire of consumers to purchase more of a good at every price ± some other factor changes 3 Shifting the Demand Curve Quantity Demanded Price D ± increase/decrease in demand refer to shifts of demand curve ± decrease in demand ± leftward shift of demand curve ± desire of consumers to purchase less of a good at every price ±
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H03DemandAndSupply - 3 The Market Adam Smith (1723-1790)...

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