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Questions and Answers
What is the economic model of price determination in a market based on supply and demand?
What is the economic model of price determination in a market based on supply and demand?
The economic model of price determination in a market is based on supply and demand.
What does the supply schedule, depicted graphically as a supply curve, show?
What does the supply schedule, depicted graphically as a supply curve, show?
The supply schedule shows the relationship between the price of a good and the quantity supplied by producers.
How is supply determined under the assumption of perfect competition?
How is supply determined under the assumption of perfect competition?
Under the assumption of perfect competition, supply is determined by marginal cost: firms will produce additional output as long as the cost of producing an extra unit is less than the market price they receive.
How would a rise in the cost of raw materials affect the supply curve?
How would a rise in the cost of raw materials affect the supply curve?
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What is the aggregate demand-aggregate supply model used to depict in macroeconomics?
What is the aggregate demand-aggregate supply model used to depict in macroeconomics?
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Study Notes
Price Determination Model
- The economic model of price determination in a market is based on the interaction of supply and demand.
Supply Schedule and Supply Curve
- The supply schedule is a table that shows the relationship between the price of a good and the quantity supplied.
- The supply curve is a graphical representation of the supply schedule, showing the direct relationship between the price of a good and the quantity supplied.
Supply Determination under Perfect Competition
- Under the assumption of perfect competition, supply is determined by the production costs and the price of the good.
- Firms produce the quantity that maximizes profit, which is where the marginal cost equals the marginal revenue.
Effect of a Rise in Raw Material Costs on the Supply Curve
- A rise in the cost of raw materials increases the production cost, leading to a decrease in supply.
- The supply curve shifts to the left, indicating that suppliers are less willing to supply the good at each price level.
Aggregate Demand-Aggregate Supply Model
- The aggregate demand-aggregate supply model is used to depict the overall performance of an economy in macroeconomics.
- The model helps to determine the equilibrium price level and real GDP of an economy.
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Description
Test your knowledge of the economic model of price determination in a market. Explore how quantity demanded and quantity supplied reach equilibrium in a competitive market.
