Econ 201 Chapter 4 Part 2 Notes
Econ 201 Chapter 4 Part 2 Notes ECON 2010
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This 3 page Class Notes was uploaded by Kathryn Catton on Wednesday February 17, 2016. The Class Notes belongs to ECON 2010 at a university taught by Dr. Zegeye in Winter 2016. Since its upload, it has received 68 views.
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Date Created: 02/17/16
A. Supply: Quantity supplied: the amount of a good that sellers are willing and able to sell. The relationship between price and quantity supplied is known as the Law of Supply: the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises. The supply schedule is the table that shows the relationship between the price of a good and quantity supplied. The supply curve is in relation, being a graph of the relationship between the price of a good and the quantity supplied. Market Supply vs Individual Supply is the same as demand above. a. Shifts in the Supply Curve: i. Input Prices-when the price of one or more inputs rises, producing the good is less profitable and firms supply less. ii. Technology- by reducing firm’s costs, advances in technology and reducing the amount of labor to make the product will be more efficient in supply. iii. Expectations- If firms decide to rise prices later, it will put current production into storage and supply less to the market today. iv. Number of Sellers- Least amount of sellers (retirement) means the market supply will fall. v. Price change of substitute products in production or another, unit tax on producer, weather, and the cost of production. B. Supply and Demand Together a. Equilibrium: the point at which the supply and demand curves intersect. The price at which they intersect is called the equilibrium price (market clearing price)- the quantity of the good that buyers are willing and able to buy EXACTLY balances the quantity that sellers are willing and able to sell. The quantity is called the equilibrium quantity. All sellers and buyers are satisfied, there is no upward or downward pressure on the price. i. There is a surplus of a good when the quantity supplied is greater than the quantity demanded. Supply exceeds demand. Here suppliers are unable to sell all they want at the going price. So, they cut their prices to lower their excess supply. These changes represent movements along the curves. ii. There is a shortage when the quantity demanded is greater than quantity supplied. Demanders are unable to buy all they want at the going price. Also known as excess demand. b. Three Steps to Analyzing Changes in Equilibrium: it depends on the position on the curves. i. We decide if it shifts either of the curves. ii. We decide whether the curve shifts left or right. iii. We use the supply-and-demand diagram to compare the initial and new equilibrium. 1. Shifts in Curves vs Movements along the Curves- Supply refers to the position of the supply curve, whereas the quantity supplied refers to the amount of suppliers wish to sell. When the price rises, the quantity supplied rises. “Change in demand/supply” are SHIFTS in the curves. “Change in quantity demanded/supplied” are MOVEMENTS along curve. C. If the price decreases later, sell less now and more in the future. If the price increases later, sell more now and less in the future. D. When Quantity Supplied = Quantity Demanded, there is an equilibrium. The price at which the equilibrium point stands is called the price equilibrium or the market clearing price. The quantity at which the equilibrium point stands is called the quantity equilibrium. This means that consumers are buying all the products they want and suppliers are selling all they want. E. The points above the equilibrium price/quantity, when Quantity Supplied exceeds or is greater than Quantity demanded, it is called disequilibrium or usually an excess supply (surplus). In this case, the price should decrease to be more efficient. F. The points below the equilibrium price/quantity, when Quantity Supplied is less than the Quantity demanded, it is called disequilibrium or usually an excess demand (shortage). In this case, the price should increase to be more efficient. G. What happens to the equilibrium price and quantity if…? a. Demand changes while supply remains constant: demand shifts left or right b. Supply changes while demand remains constant: supply shifts left or right c. If both demand AND supply change simultaneously i. Both demand and supply increase ii. Both demand and supply decrease iii. Demand increases while supply decreases iv. Demand decreases while supply increases
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