ME 4183 Lecture 2: Notes - Chapter 4.docx
Document Summary
Supply and demand pages 83-87, 90-93, 94-101 & practice problems: 1, 3-7, 10-20, 22. Demand: production possibilities frontier is very good at explaining efficiency, but we need to determine the optimal combination of production, price isn"t just based on the production it also based on the behavior of the buyers. Demand the behavior on the buying side of the transaction. Transaction action of buying and selling: supply - - behavior of the seller. Quantity demanded the specific amount demanded at a specific price: determinate of quantity of demanded - - price of good ( - ) If the price goes down, the quantity demanded goes up: reservation price the maximum price at which a person is willing and able to buy a good. Income income gives us the ability to buy things. If your income increases, you demand more of it. clothes, brand names, eating out of it.
