Chapter 03 Supply and Demand_Spring Semester, 2008

Chapter 03 Supply and Demand_Spring Semester, 2008 - 1...

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Unformatted text preview: 1 "Read ing furn ish es th e m ind o nly with th e m aterials of knowled ge, it is th in king th at m akes wh at we read o urs." - Joh n Lo cke (1632-1704) "E xp lan atio n , D em o n stratio n , C o rrectio n an d R ep etitio n ." - T h e fo ur laws o f learn in g by Joh n W o od en 2 "N othing worthwhile or long-lasting can be achieved without hard work. Form er B asketball great Sen. B ill B radley once said that during his Princeton days, his father would tell him , 'Son, when your not out practicing, som eone else is. And when you m eet that person, he's going to beat you.'" - Rep. G ary Franks, from the book: Searching for the Prom ised L and: A n A frican A m erican's O ptim istic O dyssey 3 Supply and Demand Supply and demand is an economic model Designed to explain how prices are determined in certain types of markets What you will learn in this course How the model of supply and demand works and how to use it Strengths and limitations of model 4 Using Supply and Demand Supply and demand model is designed to explain how prices are determined in perfectly competitive markets Perfect competition is rare but many markets come reasonably close Perfect competition is a matter of degree rather than an all or nothing characteristic Supply and demand is one of the most versatile and widely used models in the economists tool kit 5 Markets Specific location where buying and selling takes place, such as Supermarket or a flea market In economics, a market is not a place but rather A group of buyers and sellers with the potential to trade with each other Economists think of the economy as a collection of individual markets First step in an economic analysis is to define and characterize the market or collection of markets to analyze 6 How Broadly Should We Define The Market Defining the market often requires economists to group things together Aggregation is the combining of a group of distinct things into a single whole Markets can be defined broadly or narrowly, depending on our purpose How broadly or narrowly markets are defined is one of the most important differences between Macroeconomics and Microeconomics 7 Defining Macroeconomic Markets Goods and services are aggregated to the highest levels Macro models lump all consumer goods into the single category consumption goods Macro models will also analyze all capital goods as one market Macroeconomists take an overall view of the economy without getting bogged down in details 8 Defining Microeconomic Markets Markets are defined narrowly Focus on models that define much more specific commodities Always involves some aggregation Stops short of the broad levels of generality that macroeconomics investigates 9...
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This note was uploaded on 04/08/2008 for the course ARCH 101 taught by Professor Cline during the Spring '08 term at GWU.

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Chapter 03 Supply and Demand_Spring Semester, 2008 - 1...

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