ECON 356 - Outline Two

Pricing and the Demand and Supply Model

The Mainstream Demand and Supply Model - Price Theory in Markets

Before we begin:  Let's talk about markets in general.  The supply and demand model is a model of markets - or trade.  

Trade is mutually beneficial?  How do we know?  What is assumed?  Is trade "efficient"?

Law of Demand:

Factors Effecting Demand:

Graphs:

Concept of Price Elasticity of Demand:

    Factors:

 Determining the elasticity of demand:

 Interpreting the number:

Law of Supply:

Factors Effecting Supply:

Graphs:

Concept of Price Elasticity of Supply:

    Factors:

 Determining the elasticity of supply:

 Interpreting the number:

The concept of the Market Clearing Price or Equilibrium (explain and critique):  Market Clearing Price, Satisfactory Inventory Level for Suppliers at any given time (human action behind the model). 

Graphs:

Market prices ......"are established in a particular transaction at a particular place and at a given time by human beings."

Shortages and Surpluses - again,  human action behind the model:

Again - why we trade?

Benefits from Trade (in the model):

Consumer and Producer Surplus: