Introduction Lecture 2

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Introduction Lecture 2

• The circular flow model

Agent Households
Demand
Supply
Market Goods/Services
Market Inputs
Agent Firms
Demand
Supply
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Introduction Lecture 2

• Demand
• Consider a Demand Relation
• What are the influences on Demand for a good . .
  . ?

How does a change in some other influence affect
the demand curve?
px
a
po
What does the slope of the demand curve tell us?
b
D
X
Xo
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Introduction Lecture 2
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Introduction Lecture 2
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Introduction Lecture 2
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Introduction Lecture 2

• Supply
• Consider a Supply Relation
• What are the influences on Supply a good . . . ?

How does a change in some other influence affect
the Supply curve?
px
S
What does the slope of the Supply curve tell us?
a
po
b
X
Xo
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Introduction Lecture 2
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Introduction Lecture 2

• Putting together Supply and Demand

What is meant by the market equilibrium?
px
S
What are the possible properties of a market
equilibrium?
pe
D
X
Xe
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Introduction Lecture 2

• Comparative Statics

What is the effect on market equilibrium of a
shift in demand?
px
S
pe
D
X
Xe
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Introduction Lecture 2

• Comparative Statics

What is the effect on market equilibrium of a
shift in supply?
px
S
pe
D
X
Xe
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Introduction Lecture 2
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Introduction Lecture 2
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Introduction Lecture 2
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Introduction Lecture 2
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Introduction Lecture 2
Now read BB 4th Ed., pp. 26-43.