B407 Lecture Notes - Opportunity Cost, Kraft Dinner, Relative Price
Document Summary
The demand and supply model is the most used model in economics! Its main purpose is to show how a competitive market works. That is, it illustrates how buyers (demanders) and sellers (suppliers) come together for the purpose of establishing a price at which to exchange goods and services. It was developed in the late 1800"s by a scottish economist named alfred marshall. 2 assumptions of the d/s model (a) many buyers and sellers. Firms produce identical (standardized) goods, and each firm produces only a small percentage of total output. As a result, no one firm can control market price, and each firm must take market price as given. A competitive market exists. (b) only one factor affecting demand is assumed to change at a time (ceteris paribus assumption). The demand/supply model deals with what economists call relative prices. Money price=accounting cost, and is the amount of money given up to purchase a good or service.