chapter3

chapter3 - SupplyandDemand 1 Demand andquantitydemanded...

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1 Supply and Demand

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Demand A demand curve shows the amount of a good  consumers wish to purchase at specified prices.  Demand curve is downward sloping Demand refers to the whole schedule of prices  and quantity demanded. Quantity demanded is the amount demanded at  a particular price.
3 Demand Below is Smith’s demand curve for lobsters: 0.2 0.8 1.0 0.6 0.4 0 1 5 2 3 4 Price(\$/gram) Quantity (1000 gram/month) D D

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4 Horizontal interpretation of the demand curve If Smith faces a price of \$0.4/gram of lobster, he will  wish to purchase 4kg lobsters a month. 0.2 0.8 1.0 0.6 0.4 0 1 5 2 3 4 Price(\$/gram) Quantity (1000 gram/month) D D
5 Vertical interpretation of the demand curve If Smith is currently buying 4kg lobsters a month, the  demand curve tells us that he would be willing to pay at  most 40 cents for one additional gram of lobster. 0.2 0.8 1.0 0.6 0.4 0 1 5 2 3 4 Price(\$/gram) Quantity (1000 gram/month) D D

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Supply A supply curve shows the amount of some good  sellers are willing to offer at various prices. In general, supply curve is upward sloping.  But,  it can be downward sloping, or flat too.  Supply refers to the whole schedule of prices  and quantity  supplied . Quantity supplied is the amount supplied at a  particular price.
7 The supply of lobsters Below is Candy’s supply curve for lobsters: 0.2 0.8 1.0 0.6 0.4 0 1 5 2 3 4 Price(\$/gram) Quantity (1000 gram/month) S S

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8 Horizontal interpretation of the supply curve If Candy faces a price of \$0.4/gram of lobster, she will  wish to sell 2kg of lobsters a month. 0.2 0.8 1.0 0.6 0.4 0 1 5 2 3 4 Price(\$/gram) Quantity (1000 gram/month) S S
9 Vertical interpretation of the supply curve If Candy is currently selling 2kg of lobsters a month, the  marginal cost of a lobster is \$0.4. 0.2 0.8 1.0 0.6 0.4 0 1 5 2 3 4 Price(\$/gram) Quantity (1000 gram/month) S S

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10 Supply curves slope upward for one reason The low-hanging-fruit principle .   Harvest the lobsters closest to shore first.   More generally, as we expand the production of any  good, we turn first to those whose opportunity costs of  producing that good are lowest, and only then to others  with higher opportunity costs.
11 Adding Individual Demand Curves To Get  Market Demand Curves (Horizontal Addition) Suppose that there only two buyers—Smith and Jones —in the market for lobsters, and that their demand  curves are as shown in the following slide.   To construct the market demand curve for lobsters, we  simply announce a sequence of prices and then add the  quantity demanded by each buyer at each price to  obtain the total quantity demanded.

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12 Adding Individual Demand Curves To Get  Market Demand Curves (Horizontal Addition) 0 16 14 12 10 8 6 4 2 Price (\$/lb) Smith's
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