1. Economics 1 (EC107) 2013-14: Micro (Term 1) Robin Naylor, Department of Economics, Warwick Introduction Lecture 2 The circular flow model Agent: Households Market: Goods/Services Market: Inputs Agent: Firms Demand Supply 1

2. Robin Naylor, Department of Economics, Warwick Introduction Lecture 2 Demand Consider a Demand Relation: What are the influences on Demand for a good... ? X pxpx D a popo XoXo How does a change in some other influence affect the demand curve? What does the slope of the demand curve tell us? b 2

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6. Robin Naylor, Department of Economics, Warwick Introduction Lecture 2 Supply Consider a Supply Relation: What are the influences on Supply a good... ? X pxpx S a popo XoXo How does a change in some other influence affect the Supply curve? What does the slope of the Supply curve tell us? b 6

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8. Robin Naylor, Department of Economics, Warwick Introduction Lecture 2 Putting together Supply and Demand: X pxpx S pepe XeXe What is meant by the ‘market equilibrium’? What are the possible properties of a market equilibrium? D 8

9. Robin Naylor, Department of Economics, Warwick Introduction Lecture 2 Comparative Statics: X pxpx S pepe XeXe What is the effect on market equilibrium of a shift in demand? D 9

10. Robin Naylor, Department of Economics, Warwick Introduction Lecture 2 Comparative Statics: X pxpx S pepe XeXe What is the effect on market equilibrium of a shift in supply? D 10

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15. Robin Naylor, Department of Economics, Warwick Introduction Lecture 2 Now read B&B 4 th Ed., pp. 26-43. 15