buyer behivour lec3.pdfVIP

4/03/2011 1 BEA683 Economics for Managers ________________________________________________________________________________ 1 Week 3: Demand and Supply CRICOS Provider Code: 00586B Overview Question: What determines the demand, supply and prices in a markets? ? One way to think about “shopping” and selling behaviour: Price Takers. ? How do you decide about your demand? (the demand of 2 an individual) ? What if there are many of you? (the demand of many) ? How would you decide if you would produce and sell something? (the supply of one firm) ? What if there are many sellers? (the supply of many) ? What happens if demand and supply meet? (market equilibrium) Price Takers ? What is the best way to think about your decision to buy something? – You observe a price and then decide whether you want to buy or not? Thi b h i b d ib d i t ki Y 3 ? s e av our can e escr e as pr ce a ng. ou can only decide whether to buy or not. You cannot determine the price. ? Is this the same for a seller? No, he/she can set the price … BUT if many shops sell the same (similar) goods, then a higher price in one shop implies that all customers would buy from another shop. We assume that (at least in the long run) sellers are also price takers, i.e. can only decide whether to sell at a price or not. ? What do we think that buyers know when they make their decision? – All prices that are offered by some sellers. – All the sellers (and where their shops are). – The exact quality/design of products offered. B k h h d i th t th Price Takers 4 – uyers now ow muc a goo s wor o em. – Sellers know their costs to produce/supply a good. ? If buyers and sellers are price takers and all of the five assumptions are holding we speak of Perfect Competition. Alternatives: Bargaining (buyers and sellers discuss the price), Market Power (either the seller, e.g. a monopolist, or the buyer can influence the price). ? How to spend A$150? ? To make it easy, we assume there are only dri