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ECON 1020 - Class Notes - Week 3

Created by: Janelle Darby Elite Notetaker

ECON 1020 - Class Notes - Week 3

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background image W3 Demand, Supply, and Market Equilibrium What is a market? Market: group if buyers& sellers of a particular good or service Buyers determine demand  Sellers= supply Buyers & sellers= price Demand Quantity demand: amount of goods buyers are willing and able to purchase Law of demand: other things equal to the quantity demand of a good falls  when the price of the good rises Demand Schedule: table that shows the relationships between the price of
the good & the quantity demanded
Demand curve: graph of the relationship between the price of a good & 
quantity demanded
Market demand V. Individual Demand 
Market demand: the sum of all individual demands for a particular good or  service  o Graph: individual demand curves are summed horizontally to obtain 
market demand curve
Shift in the demand curve Substitutes: Fall in the price of one good reduces the demand for 
another good
Complements: fall in price of one goods increase demand for another Consumer income o Income increases Changes in quantity demand   Movement along the demand curve  Caused by changes in the price of the product Changes in demand  Shifts  in the demand curve either left or right  Caused by changes that alter the quantity demanded at every price o   Questions     What could cause a shift in the demand curve?   consumer income   prices of related goods    tastes   expectations   number of buyers Consumer income: as income rises demand for inferior goods decrease normal goods: products that demand varies with income inferior goods: demand varies inversely with money income Determinants of demand   Price: movement along the curve  Income, Prices of competition related goods, tastes, expectations,  and 
number of buyers
Supply  Quantity supplied: amount of goods that sellers are able to sell
background image W3  Law of supply: other things equal the quantity supplied of a good rises when 
the price of the good rises
 Supply Schedule: table that shows relationships between price & quantity 
suppliers
 Question o   What causes the change in the supply curve?      Input price     Technology     Expectation     Number of sellers Supply & Demand Market Equilibrium:  the price has reached the level where the quantity 
supplied equals the quantity demanded
Equilibrium price: price that balances the quantity supplied (Qs) & quantity 
demanded (Qd)
o Graph: price when the supply and demand curve intersect Equilibrium quantity:  Qd = Qs at the Equilibrium price o Graph: quantity when the supply & demand curve intersect Deviations from Equilibrium  Surplus price > Equilibrium price (Qs) > Qd o   Excess supply or surplus o   Suppliers will lower the price to increase sales there by moving 
towards Equilibrium
Shortage Price < Equilibrium price (Qd) > Qs o Excess demand or shortage o Suppliers raise the price due to too many buyers chasing too few  
goods thereby moving towards Equilibrium
Government set prices  Price Ceilings: determined level above which the price cant rise o   Set below Equilibrium price  o   Rationing problems  o   Black markets o   Ex: rent control Efficiency Allocation  Productive efficiency o   Produce goods at a low cost o   Using the best technology o   Using the right mix of resources  Allocation o   Produce right mix of goods  o   Combination of goods most highly valued by society  Allocation & production efficiency occurs at the Equilibrium price and quantity
in a competitive market
Change in Equilibrium   Movement along a fixed supply curve is called a change in quantity supplied  Shift in demand curve called a change in demand  Movement along the demand curve called change in quantity demanded

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School: Robert Morris University
Department: Engineering
Course: Principles of Macroeconomics
Professor: Zhou Yang
Term: Fall 2016
Tags: market, market equilibrium, supply, deamand, and Macroeconomics
Name: Econ 1020: Markets & introduction macroeconomics
Description: covers market equilibrium, supply& demand,l and the start of macroeconomics
Uploaded: 09/19/2016
4 Pages 15 Views 12 Unlocks
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