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Chapter 9 Buying and Selling Buying and Selling Trade involves exchange -- when something is bought something else must be sold. What will be bought? What will be sold? Who will be a buyer? Who will be a seller? Buying and Selling And how are incomes generated? How does the value of income depend upon commodity prices? How can we put all this together to explain better how price changes affect demands? Net and Gross DemandsEndowments The list of resource units with which a consumer starts is his endowment. A consumer’s endowment will be denoted by the vector (omega). Net and Gross Demands Endowments E.g.states that the consumer is endowed with 10 units of good 1 and 2 units of good 2. Net and Gross Demands The gross demand for a good is the amount of the good that the consumer actually ends up consuming. The net demand for a good is the difference between the gross demand and the initial endowment of goods. If we let (xl, x2) be the gross demands, then (xl - wl, x2 - w2) are the net demands. Budget Constraints Revisited  What is the endowment’s value? For which consumption bundles may it be exchanged? Budget Constraints Revisited p1=2 and p2=3 so the value of the endowment is Q: For which consumption bundles may the endowment be exchanged? A: For any bundle costing no more than the endowment’s value. Budget Constraints Revisited So, given p1 and p2, the budget constraint for a consumer with an endowment is The budget set is Budget Constraints Revisited The constraintis That is, the sum of the values of a consumer’s net demands is zero. Budget Constraints Revisited Budget Constraints Revisited Budget Constraints Revisited Budget Constraints Revisited Budget Constraints Revisited Budget Constraints Revisited Changing the Endowment Suppose that the endowment changes from to some other value such that Changing the Endowment Suppose that the endowment chan