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Explaining the demand and supply model with the cost-benefit rule

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  • Sepulveda, Cristian F.

Abstract

This paper provides a simple and intuitive explanation of the demand and supply model based on the cost-benefit rule. This rule states that an action (e.g. to buy or to sell) should be undertaken only if its benefits are greater than its costs. The approach is not novel, but standard introductory textbooks only use it to explain few isolated aspects of the demand and supply model. In this paper the demand and the supply are both fully derived by simply sorting and counting the transactions that pass the cost-benefit rule for buyers and sellers. The emphasis on this rule has two main advantages. First, it makes the model more relatable, as it is more easily applied to everyday concepts and decisions students are familiar with. Second, it provides new students of economics with a clear explanation of how, in general, the discipline of economics approaches the analysis of decisions and behavior.

Suggested Citation

  • Sepulveda, Cristian F., 2020. "Explaining the demand and supply model with the cost-benefit rule," International Review of Economics Education, Elsevier, vol. 35(C).
    • Handle: RePEc:eee:ireced:v:35:y:2020:i:c:s1477388020300219
    DOI: 10.1016/j.iree.2020.100194
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    References listed on IDEAS

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    Cited by:

    1. Sungki Kim & Jin-Seop Kim & Dong-Keun Cho, 2021. "Benefit and Cost Ratio Analysis of Direct Disposal and Pyro-SFR Fuel Cycle Alternatives Using the Results of Multi-Criteria Decision-Making in Korea," Energies, MDPI, vol. 14(12), pages 1-19, June.

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    More about this item

    Keywords

    Teaching; Demand and supply model; Cost-Benefit rule;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate

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