SR

CHAPTER 4: Supply and Demand Theory

The Market for Apples: An Economic Model

Endogenous Variables and Model Framework

  • Goal of the Model: To construct a clear and understandable economic model for the market for apples.

  • Minimum Requirements for a Successful Model: The model must be capable of explaining both:

    • Market Price (p): The price per pound of apples.

    • Quantity Traded (Q): The total quantity of apples traded in pounds.

  • Endogenous Variables: These are the variables that the model aims to explain.

    • p: Price (per pound)

    • Q: Quantity traded (pounds)

  • Market Assumptions (Framework):

    • Many Agents: There are numerous buyers and sellers participating in the market.

    • Price Takers: All individual agents (buyers and sellers) are assumed to be