Econ Chapter 3

Econ Chapter 3 - Chapter 3 Supple and Demand I Markets...

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Chapter 3 : Supple and Demand I. Markets Market is a group of buyers and sellers with the potential to trade with each other A. Characterizing a Market first step is to figure out which market I. Broad versus Narrow Definition markets can be defined broadly or narrowly depending on our purpose aggregation: process of combining distinct things into a single whole ex: computers we can also define the geography of a market (national gas prices vs local) II. Product and Resource Markets circular flow: simple model that shows how goods resources and dollar payments flow between household and firms product markets: markets in which firms sell goods and services to households (upper half of the model) Resource Markets: lower half- labor capital and land are bought and sold Resources flow from the households ( who own and supply them) to the firms III. Competition in Markets issue is how prices are determined imperfectly competitive markets: individual buyers or sellers can influence the price of the product (ex: local antique shops) perfectly competitive markets: each buyer and seller takes the market price as given the supply and demand model is designed to show how prices are determined in perfectly competitive markets
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IV. Competition in the real world while a few markets are strictly perfectly competitive, most markets have enough competition for supply and demand to explain broad movements in prices II. Demand quantity demanded: good or service is the number of units that all buyers in a market would choose to buy over a given time period, given the constraints that they face Quantity demanded implies a choice: How much households would choose to buy when they take into account the opportunity cost of their decisions Quantity demanded is hypothetical: how much would people be able to purchase Quantity demanded depends on price: price is one variable that influences quantity demanded A. Law of Demand
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