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Econ 1020: Markets & introduction macroeconomics

by: Janelle Darby

Econ 1020: Markets & introduction macroeconomics Econ 1020

Marketplace > Robert Morris University > Economics > Econ 1020 > Econ 1020 Markets introduction macroeconomics
Janelle Darby

GPA 3.1

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About this Document

covers market equilibrium, supply& demand,l and the start of macroeconomics
Principles of Macroeconomics
Zhou Yang
Class Notes
market, market equilibrium, supply, deamand, Macroeconomics
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This 4 page Class Notes was uploaded by Janelle Darby on Sunday September 18, 2016. The Class Notes belongs to Econ 1020 at Robert Morris University taught by Zhou Yang in Fall 2016. Since its upload, it has received 8 views. For similar materials see Principles of Macroeconomics in Economics at Robert Morris University.


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Date Created: 09/18/16
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 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 W3 Introduction to macroeconomics Performance & policy Real GDP: Adjust price changes (output) GDP: total market value of all final goods & services  Nominal GDP: Uses current prices  Unemployment: cannot get a job despite willingness to work  Inflation: Increase in overall level of prices Policy questions How to promote economic growth? How to reduce severity of recession? Monetary or fiscal policy more effective when copying with current recession? Is anticipated or unanticipated government policy more effective? Macro models are used to clarify many important questions about the power and limits of government economic policy Modern Economic Growth Standard of living measured by output per person No growth in living standards prior to the industrial revolution GDP per capita: GDP per person Non- Uniform experience across countries for economic growth Saving & investment Saving o Trade off current for future consumption Investment o Financial investment o Economic investment Pole of banks & financial institutions Shocks What happens doesn’t equal what you expected Demanded shocks o Flexible prices  Price falls when demand is low  Sales uncharged o Sticky prices  Maintain inventory  Sales change  Business cycles Future is uncertain Expectations influence investment o Have changes on current behavior o Economic growth Sticky Prices  Consumers prefer stable prices  Firms want to avoid price wars Flexible Prices W3  Firms adjust to unexpected, but permanent changes in demand Inventory management Computerized inventory thinking Easier to observe unexpected changes in demand Better output& employment decisions Less severe business cycles Only 2 mild recessions before 2007 Possible explanation


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