Micro Ch 3 Supply and Demand

hAllocation efficiency - always follow the dollar sign.

Markets are intitutions that enable buyers and sellers to interact and transact.

Two questions people ask:

  • What to buy

  • How much

Price System:

The price system, also known as the market economy, is where the prices of items communicate buyers' and sellers' desires.

Labor market:

Price ←→ Wage

Financial Market:

Price ←→ Interest rate

Online Stores:

Prices ←→ Allocative Efficiency

Stock Exchange:

Price ←→ Allocative Efficiency

Currency Market

Price ←→ Allocative Efficiency

Future Market

Competitive Market Asssumption:

  • Competitive markets have many buyers and sellers

  • Buyers and sellers in competitive market are free to act in their self-interest

  • In a competitive market, prices are determined by forces of supply and demand

    • Similar Prices → Price Taker

  • Identical Products Assumption

  • “Cetris Paribus”

Polymarket - basically database to bet online

Willingness to pay (WTP) is the max amount a customer is willing to spend for a good or a service. The highest value a consumer places on the good or service

hypothesis

data

analyze data

conclusion

Law of demand:

  • think about the price of a good influences the quantity demanded by consumers

  • the law of demand states that there is an inverse relationship between price and quantity demanded.

Inverse Relationship - As Price Rises, Quantity Demanded Falls

5 Determinants (Shifters)

  • Tastes and preferences

  • Income

  • Prices of Related Goods

  • Number of Buyers

  • Expectations

Non price factors influence demand anc can shift the entire demand curve

Every purchase is a vote cast by your willingness to pay

demand - just a number

quantity demanded is a function

Supply - max amount of a product that producers are willing and able to offer

as price increases sho does quanitiy supplied and other way around aswell

production technology shifts the entire supply curve to the right

Change in quantity supplies means its movement along the line up or down

Change in supply is when the whole supply curve shifts to the left or right

Market Stable Result?