LECTURE 6 – Econ 101 Test 2/20/08 • 35 multiple choice questions • Aplia problem sets, problems in back of book, lecture notes Supply and Demand • Market consists of buyers, sellers and a good/service (x) • As price increases, number of sellers increases; inversely, as price increases, number of buyers decreases • Over time, the prices that we see among sellers will likely be about the same; transactions that take place will take place at one price. What’s that price going to be? • Prices will naturally gravitate towards intersection point of supply vs. demand curve (prediction; law of one price), in reality there will be hundreds of prices • Everyone who buys a good values it at at least its price. Those who don’t have it value it at less than its price, i.e. aren’t willing to pay for it • The “invisible hand” – earning the most surplus you can in a competitive setting, causing a natural setting of price, without interference, simply from having competition
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