decentralized decisions by individuals leading to exchange of a good or service.  Another view: a group of buyers and sellers of a particular good or service

1.      Buyers are trying to get the same stuff, at the expense of other buyers if necessary.  Sellers are trying to sell the same stuff, at the expense of other sellers if necessary.

2.1       Note that the degree of competition among both buyers and sellers can vary greatly.

the quantity of a good that buyers desire at different prices. 

1.1.   In economics, it is not necessarily the amount actually purchased, but the quantity that buyers wish to purchase at a given price.

1.2.   Think of demand as the maximum quantity that would be purchased, at each price, if markets worked really well.

As prices fall, a greater quantity is demanded.  Equivalent formulation: as quantities available increase, the prices that buyers are willing to pay falls.

2.1       Rationale: Marginal value (a broader name - marginal benefit), the value of an additional unit.  Individuals compare their marginal values to the prices that they observe and decide whether to purchase the stuff. 

4.1       Definition: the quantity demanded (that is, desired) at each possible price.

4.2       Alternative definition and construction: the highest price at each point that an individual is willing to pay for the given quantity.  That is, the price = marginal value point.  This is the sense in which it is a demand frontier. This is called “willingness to pay”.

4.3       A market is called efficient in consumption if price = marginal value.

4.4       Market demand is the horizontal sum of individual demands.

Changes in a relevant variable that is not measured on either axis, that is, a variable other than the good’s own price or quantity, will cause the curve itself to shift.   A shift of the curve is called a “change in demand”.

7.1       Income changes.

7.1.1    Normal versus inferior goods.

7.2       Wealth changes.

7.3       Prices of related goods.

7.21     Substitutes versus complements.

7.4       Tastes and expectations.

1.     The quantity of a good that producers are willing to provide at different prices.

1.      as prices rise, producers are willing to provide more. 

marginal cost,

The supply curve (also known as the supply frontier).

3.1       Definition: the quantity supplied (potentially available for sale) at each                               price.

3.2       Construction: the lowest price that a supplier is willing to accept for a given quantity.  This is the sense in which it is a supply frontier.  The supply curve is the marginal cost curve for the market.

3.3       Important note: price will equal marginal cost for the last unit brought to market under restrictive perfect competition assumptions, but in general in real life price does not equal marginal cost.  That is, in general suppliers work within the supply frontier.  But the limiting case of the supply frontier is extremely valuable for analysis.

3.4       Market supply is the horizontal sum of individual firm supply.

Input prices

technological change

substitutes and complements in supply

Elasticity measures how much quantity demanded or supplied changes when market conditions change. Think of it as responsiveness, for example, the responsiveness of quantity demanded to a change in price.

the % change in the quantity demanded of a good given a % change in the price of that good. (Equivalent expression: the elasticity is the proportional change in the quantity demanded of a good given a proportional change in the price of that good.) This is the leading example of an elasticity in the text, but for many purposes other elasticities are more relevant; three of these are discussed later.

cross-price elasticity of demand

measures how the quantity demanded of one

good changes as the price of another good changes. It is measured as the

percentage change in quantity demanded of good 1 divided by the percentage

change in price of good 2. Relate the sign of cross

‐price elasticities to substitutes

and complements

substitutes

measure how much quantity demanded changes as consumer income changes. It is the percentage changed in quantity demanded divided by the percentage change in income. Relate the sign of income elasticities to normal and inferior goods.