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Unformatted text preview: 9/21/2009 1 Announcements Announcements Reading for today text Chapter 3 pp. 66-77 (64-75 5 th edition) Reading for Wednesday text Chapter 4 pp. 80-86 (75-80 5 th edition) Homework 2 is posted to the website The Market The Market We seek a model of market interaction determining price and quantity transacted The Supply and Demand mode The Supply and Demand model Demand curve Supply curve Market equilibrium Assumptions Assumptions Individual buyers and sellers are too small to affect the market The products in the market are homogenous: every one is exactly alike every one is exactly alike Information: everyone knows everything about the product and the price Products are private goods, privately consumed with no affects on other people Ignore time equilibrium where demand and supply curves cross Equilibrium Equilibrium market equilibrium - equilibrium price and quantity quantity demanded by consumers is equal to quantity supplied by firms with no pressure to change Do market forces operate so that price and quantity move towards the equilibrium? Suppose market price < p E Price (per unit) ($ per unit) ($ per unit) pressure for increase in price excess demand or shortage Q E P E E Suppose market price p E Q Q S D Q D > Q S shortage Quantity S D equilibrium where demand and supply curves cross Equilibrium Equilibrium market equilibrium - equilibrium price and quantity...
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