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assumptions for perfectly competitive market
- many buyers and sellers, so no ind. buyer/seller has any influence on the market
- homogeneous product
- resources are completely and freely mobile (no entry/exit costs)
- perfect knowledge
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behavioral assumptions for firms
- profit maximization
- cost minimization
- (duals of one another)
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behavioural assumptions for consumers
utility maximization subject to budget constraint (remember the 4 types of utility?)
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law of demand
- "there is an inverse relationship between the quantity of a good demanded and its price"
- ex. as prices go up, you demand less (ceteris paribus)
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4 axioms of choice (demand) theory
- 1. reflexivity (bundles of goods clearly defined)
- 2. non-satiation (you never get "full", always want more)
- 3. completeness (you know what the bundles are so you can compare them)
- 4. transitivity (if you prefer A to B to C, then you prefer A to C)
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what is held constant when we think of demand schedules/curves?
- economic factors (income, prices and availability of other relevant goods and services)
- demographic factors (population, age, ethnicity)
- tastes and preferences
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demand shifters
- when some other factor relevant to the market changes
- ex. economic factors like income, demographic factors, tastes and preferences
- shift the whole demand curve
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speculative demand
- a type of demand related to anticipated use and prices relative to current use and prices
- you get worried about the future so you buy more now
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derived demand
- demand schedules for inputs that are used to produce final productsÂ
- ex. demand for retail pork chops -> process have demand curve for hogs -> hog farmers have demand curve for corn -> etc.
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