48. Market Equilibrium Price S D A Equilibrium Q 1 0 P 1 Equilibrium Price Quantity
49. Market Equilibrium Equilibrium Quantity Price S D A Equilibrium Q 1 0 P 1 Quantity Equilibrium Price The equilibrium price is also known as the “market-clearing” price. At this price, both consumers and producers are satisfied.
50.
51. An Increase in Demand Quantity Price 0 P 1 Q 1 A S 1 D 1
52. An Increase in Demand Quantity Price 0 P 1 Q 1 A ( Original Market Equilibrium ) S 1 D 2 D 1
53. An Increase in Demand Quantity Price B 0 P 1 Q 1 A S 1 D 2 D 1
54. An Increase in Demand Quantity Price B Q 2 0 P 2 P 1 Q 1 A S 1 D 2 D 1
55. An Increase in Demand Quantity Price B( New Market Equilibrium ) Q 2 0 P 2 P 1 Q 1 A S 1 D 2 D 1
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57. An Increase in Supply Quantity Price A (original market equilibrium) Q 1 0 P 1 D 1 S 1
58. An Increase in Supply Quantity Price A Q 1 0 P 1 D 1 S 1 S 2
59. An Increase in Supply Quantity Price A Q 1 0 P 1 P 2 Q 2 B (New Market Equilibrium) D 1 S 1 S 2
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61.
62. Excess Demand Quantity Price S D 0 P 1 Equilibrium Price Equilibrium
63. Excess Demand Quantity Price S D A Equilibrium 0 P 1 Equilibrium Price P 0 Price below Equilibrium Price
64. Excess Demand Quantity Price S D A Equilibrium 0 P 1 Equilibrium Price P 0 Price below Equilibrium Price Q s 0
65. Excess Demand Quantity Price S D A Equilibrium 0 P 1 Equilibrium Price P 0 Price below Equilibrium Price Q s 0 Q d 0
68. Excess Supply Quantity Price D Equilibrium 0 P 1 Equilibrium Price S
69. Excess Supply Quantity Price D Equilibrium 0 P 2 Price above Equilibrium Price P 1 Equilibrium Price S
70. Excess Supply Quantity Price D Equilibrium 0 P 2 Price above Equilibrium Price P 1 Equilibrium Price S Q d 2
71. Excess Supply Quantity Price D 0 P 2 Price above Equilibrium Price P 1 Equilibrium Price S Equilibrium Q s 2 Q d 2
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73.
74.
75. Shortage Quantity Price S D A Equilibrium 0 P 1 Equilibrium Price P 0 Price Below Equilibrium Price (Price Ceiling)
76. Shortage Quantity Price S D A Equilibrium 0 P 1 Equilibrium Price P 0 Price below Equilibrium Price Q s 0
77. Shortage Quantity Price S D A Equilibrium 0 P 1 Equilibrium Price P 0 Price below Equilibrium Price Q s 0 Q d 0
78. Surplus Quantity Price D Equilibrium 0 P 2 Price Above Equilibrium Price (Price Floor) P 1 Equilibrium Price S
79. Surplus Quantity Price D Equilibrium 0 P 2 Price above Equilibrium Price P 1 Equilibrium Price S Q d 2
80. Surplus Quantity Price D 0 P 2 Price above Equilibrium Price P 1 Equilibrium Price S Equilibrium Q s 2 Q d 2
Editor's Notes
Most of time we are looking for Market Demand, or the sum of all the individuals quantities demanded in a market Example: Suppose you want to start a TV repair service -set up shop in neighborhood with many TVs & no repair shops -want to set up business in area where demand is greatest willingness means person’s want or desire to purchase & ability is having enough money to pay for the good (need both for demand!) example: Jack doesn’t have $34,000 to buy a specific car, has the willingness but not the money so there is NO demand
Prices of Related goods – substitutes (apples & oranges, chicken & beef) complements (cars & gas) Preferences: people are beginning to favor small gas-efficient cars so D shifts right while people are favoring other laptops other than Dell recently so their D curve shifts left Complements-Tennis rackets & tennis balls (demand moves in the opposite direction of the price) # of buyers - the more buyers the higher the D, the fewer the buyers the lower the D (higher birthrate, immigration, migration, death rate, or migration)
Elastic ex. – T-Bone steaks are elastic b/c $6 a pound compared to $3.50 a pound is going to cause a huge change in QtD (designer clothing / luxury items) Elastic curves – more horizontal Inelastic curves – more vertical Inelastic – higher or lower price on salt will not change Qtd greatly (ex. Toothpaste) Elastic - when quantity demanded is greater than percentage change in price Inelastic-when quantity demanded is less than percentage than price Unit elastic- when Qd changes by the same % as price
1. Tobacco is inelastic b/c addictive & insulin needed for diabetic no matter what
Once again, dealing with Market Supply, or sum of all the individual quantities supplied Supply example: supply of TVs is the number of sets manufacturers are likely to produce at $700, $500, $300, or any other price Supply: economists think about people’s ability & willingness to offer products for sale over a wide range of prices Supplier-offer economic product for sale
Based on idea of trying to maximize revenues, or profits as a business
Cost of inputs – in T-shirt, supply may have increased because of a decline in the cost of such inputs as cotton or ink = if price of inputs goes down, producer can produce more T-shirts at each and every price Prod. – more T-shirts can be produced in a production period = supply increases, if workers are unhappy/unmotivated, untrained supply decreases Technology- introduce new machine, chemical/industrial process can lower cost of production, so when costs are down producers are willing to produce more at each & every price in the market (supply down if technology breaks down) Subsidies – government payments to individuals, businesses, or other groups to encourage or protect a certain type of economic activity have opposite effect & supply increases (ex. Farmers historically receive subsidies to offset costs of production)
Government Regulations ex. Government mandates safety features to automobiles like emission controls, stronger bumpers, & air bags which increases production cost of car Natural Disaster/Crisis – somolian pirates slowing African shipping
Elastic – kites & candy because not much needed to increase production (therefore if prices rise they can increase output quickly) Inelastic – oil (need lots of machinery, capital, labor to increase production so it is inelastic), banana plantations Elasticity is influenced by availability of inputs, mobility of inputs, storage capacity, & time needed to adjust to price change
E price is also market-clearing price – market is cleared of all surpluses & shortages E is like the point reached on a balance scale when each side holds an object of equal mass When supply matches demand, both consumers & producers come away satisfied (even though producers would like higher prices & consumers lower prices)
At farmer’s market, no farmer goes home with leftover melons, and no consumer leaves empty handed at $5.00 a melonn
New video game or movie release = too many consumers! Shortage in real world – have a playoff high school football game that stadium seats 2,000 people but 2,500 people want to come to game (shortage) Price rises b/c buyers will offer to buy products at higher prices so they get the products, higher pices will also motivate sellers to produce more output
Surplus = clearance rack in any store Surplus in real world – high school football playoff has stadium for 2,000 seats but only 500 people attend (surplus of seats) Price falls because suppliers cannot sell all of their products & want to get rid of inventories (storing extra goods is costly) & produce less output
Neutral-do not favor the producer nor the consumer (result of competition between buyers & sellers) Flexible – can absorb unexpected shocks & then stabilize Freedom of choice – endless choices if one price is too high or if good not exactly what desired No administrative cost – prices need little help to stabilize, adjust normally Efficient-easily understood & people can make decisions quickly & efficiently
Usually time when government steps in to control / regulate the market
On a whole prices do a great job of allocating scarce resources to their best uses by flucuating however the gov’t does intervene at times to influence prices Price ceiling meant to allow consumers to buy essentials that they otherwise wouldn’t be able to afford at the E price (sometimes in response to crises such as war, natural disaster, or crop failure Price floor is meant to push prices up, helping producers benefit PC – NYC rent controls (introduced during WWII to protect poor families): no fixed price market creates rent price at $700 a month & demand is 2 million then with fixed price at $500 a month demand rises to 2.5 million then landlords might be unhappy and convert some apartments to other uses for higher returns = only 1.5 million apartments offered for $500 a month = Shortage of 1 million apartments (more likely better appts converted to condos/offices & leaves worse conditioned appts, people are unhappy without apartments, landlords need to cut costs so upkeep of appts gets worse & no incentive to make more appts & shifted out of market) PF – minimum wage is lowest legal wage that can be paid to most workers (gov’t argues that in some low-skill markets, where workers outnumber jobs, s & d would drive the E wage so low that people could afford to live) many argue mw increases number of people unemployed b/c employers hire less workers -12 million workers would work at EP of $4 an hour but employers only hire 10 million at $5.15
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