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## Econ 1 Week 3

by: Chiang Notetaker

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# Econ 1 Week 3 Econ 001

Chiang Notetaker
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Supply and demand
COURSE
Introduction to Economics
PROF.
Kurt E Schnier
TYPE
Class Notes
PAGES
2
WORDS
KARMA
25 ?

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This 2 page Class Notes was uploaded by Chiang Notetaker on Sunday September 11, 2016. The Class Notes belongs to Econ 001 at University of California - Merced taught by Kurt E Schnier in Fall 2016. Since its upload, it has received 4 views.

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Date Created: 09/11/16
Econ 001 Chapter 4 Lecture- 9/6/16-9/8/16 (Week 3) Supply and demand are forces that make market economies work. A market is a group of buyers and sellers of a particular good or service. In a competitive market, there are many buyers and sellers such that none of the buyers and sellers has a significant impact on the price. A perfectly competitive market has two characteristics. 1. The goods sold are the same from any of the sellers, and 2. All of the buyers and sellers have a negligible impact on the price. The quantity demanded is the amount of a good that buyers are willing and able to purchase at a given price. The law of demand states that, as the price increases, demand decreases. A table showing the relationship between the price and quantity demanded is a demand schedule. A change in price moves the demand along the curve, while a change in demand moves the entire curve. 5 determinants of demand 1. Price of related goods (substitutes and complements) a. Price of substitute increases, demand for the good increases b. Price of complement increases, demand for good decreases 2. Income (inferior goods, normal goods) a. Income increases, demand of inferior goods decreases b. Income increases, demand of normal goods increases 3. Tastes and preferences (preference increases, demand increases) 4. Price and income expectations a. Income expected to increase, demand increases b. Price expected to increase, demand increases 5. Number of buyers (more buyers, more demand) Quantity supplied is the amount of a good sellers and willing and able to sell at a given price. The law of supply states that as the price increases, the quantity supplied increases. 4 determinants of supply 1. Input prices (input prices increase, supply decreases) 2. Technology (technology increases, supply increases) 3. Number of sellers (more sellers, more supply) 4. Future expectations (Price expected to increase, supply decreases) When supply and demand for a good is put on the same graph, the intersection of the two curves is the equilibrium. The price and quantity at the equilibrium is the equilibrium price and equilibrium quantity. Market forces push prices towards equilibrium. A surplus is when supply exceeds demand, and price decreases. A shortage is when demand exceeds supply, and price increases. Comparative statics is evaluation of the changes to equilibrium price when determinants change. 3 steps in comparative statics: 1. Does the event shift supply or demand? 2. Does the curve shift right or left? 3. Use supply and demand diagrams to compare initial and post equilibriums. PE = equilibrium price, QE = equilibrium quantity Increase in demand = PE increase, QE increase Increase in supply = PE decrease, QE increase Decrease in demand = PE decrease, QE decrease Decrease in supply = PE increase, QE decrease If there is a change in both supply and demand, without knowing more information you can only determine the change in either PE or QE.

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