# MSU EC 201 - Chap3 (37 pages)

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# Chap3

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## Chap3

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Pages:
37
School:
Michigan State University
Course:
Ec 201 - Introduction to Microeconomics
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Krugman and Wells Chapter 3 Steven J Haider EC201 Spring 2015 Where we re going This chapter introduces one of our central models perfect competition or supply and demand or a competitive market This chapter quickly lays out the pieces so we can start to use the model Later chapters will develop the pieces in more detail The model is relatively simple and applicable to a large number of markets The key assumption there are a large number of suppliers demanders so that no individual supplier demander can affect the price Suppliers and demanders are price takers Model probably works well for cotton Model probably works poorly for computer operating systems We will discuss the cotton market throughout this chapter following the book p2 Key components The Demand Curve Tells us how much consumers are willing to buy at each price Demand is downward sloping The Supply Curve Tells us how much a firm is willing to sell at each price Supply is upward sloping Shifting vs moving along a curve Equilibrium The model s prediction for the resulting price and quantity transacted in the market p3 Demand Quantity demanded Refers to the amount demanded at one particular price Demand Answers the question what is the quantity demanded at every price Price changes is key to market outcomes so we consider this from the start NOTE text leaves off the underlined piece I think it is an important addition to distinguish from quantity demanded NOTE Quantity demanded vs demand is an arbitrary but very important naming convention Two representations of demand Demand Schedule table form Demand Curve the graph of the demand schedule p4 Demand example Demand schedule is table Quantity demanded at 2 00 is 7 1b pounds Demand is dark blue curve p5 Demand using the model Law of Demand Quantity demanded is higher when prices are lower other things equal or demand curves slope downward This finding is so common we call it a law Shifts in demand Demand curve shows different quantities demanded for all

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