EC 201 Lecture Notes - Lecture 3: Random Variate
Document Summary
Lecture #3: the market system, law of demand, and demand function (chapter 4) The market is an institutional arrangement by which buyers and sellers exchange goods and services. Prices are the signals that guide market behavior. There are two sides of the market. We need to understand both to understand the allocation of resources. Xd = f (px , pr , i , pe , number t) Pr = a vector of prices of related goods -e. g. complements and substitutes, say, pc and ps. Complements: you need product x to use product y. I = consumer incomes or wealth -i. e. most goods are either. Number = size of the market -e. g. number of consumers. In general, the higher the price of a good, the greater the quantity of that good sellers are willing and able to produce. Xs= + px where > 0 jxs = g(px) Note that * captures other variables in the function.
