Econ+102+lecture+2%2C+1-10-12+-+S_D%2C+equil+math copy

Econ+102+lecture+2%2C+1-10-12+-+S_D%2C+equil+math copy -...

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Lecture 2: Supply and Demand  and solving for equilibrium Econ 102, Winter 2012 1/10/2012 1 Required reading : Ch 3: (all) pp. 61-88 Suggested reading : Ch 2 apdx: (all) pp. 45- 58
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Outline 1. 2. The demand function 3. The supply function 4. Equilibrium and equilibration 5. Shifts, mathematically 6. Resource markets: labor 1/10/2012 2
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The supply and demand model I will add a layer to the text: simple mathematical representations of the curves Given these representations, we can find the exact equilibrium and discuss the consequences of changes in the markets This method of solving for equilibrium will be used throughout the class! A basis for a lot of the insights in the class Isn’t in the book, and so lecture notes and practice are key 1/10/2012 3
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The supply and demand model S&D is our model of how price and quantity are determined in the competitive markets for individual goods and services It assumes “free” markets Consumers make choices based on their own preferences Producers make choices based on the costs of production These agents are NOT influenced by others, including: a. Government controls and regulation 1/10/2012 4
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The supply and demand model The theory of “free” markets In free markets, agents are NOT influenced by c. The effects of the choices of other firms & organizations . their actions in the market don’t help or hurt me . they don’t have the power individually to manipulate the market (there’s no “market power”) Price and quantity are a function of independent optimization, with no “manipulation” by those able to change others’ behavior Based only on economic fundamentals : 1/10/2012 5
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Further, S&D determine relative prices How much does one good cost compared to another? This is what’s important for choice at the individual level – given my income, do I eat steak or hamburger? Need to know which has higher price Prices give us the ability to compare goods Can compare lengths of objects with meters, inches, etc. The units are arbitrary, the underlying length is the
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This note was uploaded on 02/10/2012 for the course ECON 102 taught by Professor Rossana during the Winter '08 term at University of Michigan.

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Econ+102+lecture+2%2C+1-10-12+-+S_D%2C+equil+math copy -...

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