EC238 Chapter Notes - Chapter 2: Ceteris Paribus, Private Good, Economic Equilibrium

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28 Aug 2016
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Market: the interaction between consumers and producers to exchange a well defined commodity. Defining the market context is a key step in economic analysis. The form of the model varies with the objective of the prospective study and its level of complexity. Two decision makers in any market exchange: buyers and sellers. Decision of producers modeled by a supply function. Decision of consumers modeled by a demand function. Main objective of a supply and demand model is to facilitate an analysis of market conditions and any observed price changes. More complex analysis is necessary when the market system fails to operate properly. Building a basic model: competitive markets for private goods. In order to make a basic model, these assumptions must be made: a competitive market is assumed which means: A large number of buyers and sellers with no control over price. Perfect information: assumed to be a private good. Private good: a commodity that has two characteristics:

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