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Markets (Unit 2) August 26, 2008

Posted by petrarcanomics in Markets: Supply & Demand.
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This unit will explain how markets function using supply and demand analysis.

Demand

A typical demand curve will be negative sloping as exhibited in this demand schedule for milk.

Price Quantity Demanded
$2.80 500
$2.90 450
$3.00 400
$3.10 350
$3.20 300

As you can see, as the price of milk increases, quite logically, the quantity demanded of milk by consumers of will decrease causing there to be an inverse relationship between the price and quantity demanded. This applies to all consumer products.

Quantity demanded points strung together at various prices make up the demand curve.

A current change in the price of the good itself will only cause changes in quantity demanded along the curve but will not cause any shifts in the demand curve as a whole.

For a more thorough explanation visit Reffonomics.

Supply

A typical supply curve will be positive sloping as exhibited in this supply schedule for milk.

Price Quantity Supplied
$2.80 300
$2.90 350
$3.00 400
$3.10 450
$3.20 500

As you can see, as the price of milk increases, quite logically, the quantity supplied by producers of milk will increase causing there to be an positive relationship between the price and quantity demanded. This applies to all products. Naturally producers are going to want to supply more of a certain product, such as milk, at a higher price because this will increase total revenue and profit.

Quantity supplied points strung together at different prices make up the supply curve.

A current change in the price of the good itself will only cause changes in quantity supplied along the curve but will not cause any shifts in the supply curve as a whole.

For a more thorough explanation visit Reffonomics.

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Comments»

1. Steven Reff - October 1, 2008

Dick Brunelle and I thank you for using our site. Enjoy!

Live well, laugh often, and love life much,

Reff


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