Chapter 3 cont..

Chapter 3 cont.. - A Graphical Depiction of the Pricing...

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Unformatted text preview: A Graphical Depiction of the Pricing Process and the Law of One Price Chapter 3 continued Demand and Supply Consider the hypothetical data below on a market for TI business calculators (again, a snapshot of reality). Pot. Buyers who will pay the highest based on indiv. evaluations Pot. Sellers highest seller to lowest, most eager seller $26 $27 24 25 22 23 20 21 18 19 16 17 14 15 12 13 10 11 8 9 7 5 At Price Quantity Demande d Quantity Supplied Excess or Balance $24 2 10 XS=8 20 4 8 XS=4 16 6 6 Equilibriu m 12 8 4 XD=4 8 10 2 XD=8 Recall that prices for potential buyers are the highest they are willing to pay and the lowest for potential sellers. Now determine both the quantity demanded and the quantity supplied at various hypothetical prices (see the example below-the prices selected are optional). A graphical depiction of the TI calculator market above. Show a graphical relationship between both quantity demanded and quantity supplied at various prices. Quantity (Q) is on the horizontal axis. Price (P) is on the vertical axis. The line or curve showing the relationship between the quantity demanded at various prices reflects DEMAND(D) . The line or curve showing relationship between the quantity supplied at various prices reflects SUPPLY (S) . The graph below reflects the same pricing processes as before; however, the intersection of supply & demand result in one price and not a range of prices. Q P TI business calculator market Supply Demand $16* 6* $20 $12 xs=4 xd=4 Some considerations on the graphical depiction The Law of Supply and Demand The demand curve is downward sloping reflecting a negative relationship between prices and quantity demanded. The supply curve is upward sloping (or vertical) reflecting a positive relationship between prices and quantity supplied. How does the Law of Supply and Demand reflect the aggregate of all individuals and the Law of Diminishing Marginal Utility? Personal evaluation will effect the law of diminishing marginal utility The Law of One Price A change in Demand means a shift in the curve! Old Demand black New Demand color Same Pot. Sellers $26 $29 $27 24 27 25 22 25 23 20 23 21 18 21 19 16 19 17 14 17 15 12 15 13 10 13 11 8 11 9 7 5 At Price QD before QD now QS sam e $25 1 3 11 21 3 5 9 17 5 7 7 Equil ....
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Chapter 3 cont.. - A Graphical Depiction of the Pricing...

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