Supply and Demand

Supply and Demand - Economics Economics Scarcity when the...

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Economics Economics Scarcity – when the price is zero and there is not enough for everyone 1. Unlimited wants <-> Limited availability Decision making – people behave as if they are comparing the cost and benefits 1. Benefits <-> Cost Cost = opportunity Cost 1. The value of the forgone alternatives 2. The cost of explicit and implicit resources that are forgone when a decision is made Demand 1. The law of demand : holding other things constant, the lower the price of a good the larger the quantity consumers wish to purchase. 2. Why is the demand curve downward sloping? The income effect The substitution effect As the dollar price of a good increases, the relative price of the rest of the goods decreases Substitutes are everywhere! 3. How to think about the demand curve? A demand of a single consumer Joe Smith’s consumption of apples A demand for one unit of the good by a number of consumers Refrigerators, cars The combination of the two 4. Demand of a single consumer + Demand for one unit by a number of consumers = MARKET DEMAND CURVE Market demand curve is a horizontal sum of individual demand curves Price = relative price 1. The amount that the consumer has to give up to obtain one unit of a good 2.
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Supply and Demand - Economics Economics Scarcity when the...

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