Week_3Week Three: Lecture Three
Chapter 3: Supply and Demand
Questions:
● Why do some paintings sell for millions while other for only a few hundred dollars?
● Why are diamonds so pared to water when water is essential to life?
╚ Value is more closely linked to
Model of petitive Market
● Competitive Market =
.
● Supply and Demand model consists of:
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Demand Curve
● Demand =
● What influences how much of a good a consumer buys?
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Recall: simplified models measure only one change at a time,
Therefore, a model of demand for a good will hold everything constant except .
╚
● A model of demand illustrates how a change in price
affects
●Let’s start with a demand schedule
Demand schedule =
Example:
If cookies were being sold in the hallway for $ each, how many would you buy?
Demand Schedule
Price of Cookies Quantity of Cookies Demanded
$
$
$
$
$
Demand Curve
● Demand curve is a graph of the demand schedule.
╚
● Why does it slope down?
It slopes down because people don’t want as much when the price is higher. When the price gets higher, holding everything else constant (e, prices of other goods, preferences, etc.), purchasing power of your e decreases, you cannot afford to buy the same amount as you did before.
Law of Demand =
●Shifts in the Demand Curve:
╚
. suppose your e increases by $100,000 per year. How would this affect your consumption for different goods?
∟holding prices of different goods constant, you will buy
more because you e wealthier.
The demand curve shiftsà
In general:
An increase in quantity demanded at each price results in a shift to the
à
A decrease in quantity demanded at each price results in a shift to the
à
• Things that shift the demand curve:
1. Changes in price of related goods.
∟ related goods can be substitutes plements.
1). Substitutes =
.
2). Complements =
.
• Two goods are substitute if a rise in the price
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