Bottled Water

Bottled Water

In order to determine how economic agents should determine prices and quantities of production, we must specify how consumers in a market will react to various prices. The most common method of characterizing consumer behavior is by specifying a demand function that determines the quantity demanded at each price offered by the seller. We can also invert the demand function and characterize the price at which a certain quantity is demanded. For the balance of this essay, we will consider deterministic demand functions which relate exactly what will be sold at a given price. Admittedly demand is generally stochastic, ...