Week 4 Notes
Week 4 Notes AREC 202-001
Popular in Agriculturl/ Resource Economics
Popular in Business
This 3 page Class Notes was uploaded by Alexa Johnson on Sunday September 20, 2015. The Class Notes belongs to AREC 202-001 at Colorado State University taught by Rebecca Lynn Hill in Spring 2015. Since its upload, it has received 50 views. For similar materials see Agriculturl/ Resource Economics in Business at Colorado State University.
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Date Created: 09/20/15
AREC 202 Agriculture and Natural Resource Economics week 4 Igt Acompetitivemarket is in equilibrium when price has moved to a level at which quantity of good or service demanded equals the quantity of that good or service supplies 1 This price point is also referred to as equilibrium price or marketclearing price a The quantity of the good or service bought and sold at that price is called the equilibrium quantity 2 The easiest way to determine the equilibrium price and quantity in a market is to place supply and demand curves on the same graph a The point where the supply curve and demand curve intersect is the equilibrium 3 In any market where sellers and buyers have been around for some time sales and purchases tend to converge at a general uniform price called market price 4 There may be surplus or shortage in a market a Surplus of a good or service occurs when the quantity supplied exceeds the quantity demanded or when price is above equilibrium b A shortage of a good or service occurs when the quantity demanded exceeds the quantity supplied or when the price is below equilibrium 5 The market always moves toward equilibrium price where there is neither a surplus nor a shortage Igt Changes in supply and demand or the equilibrium price and quantity in a market result from shifts of the supply curve demand curve or both 1 An increase in demand shown by a rightward shift increases both the equilibrium price and equilibrium quantity a Leads to movement along the supply curve 2 A decrease in demand shown by a leftward shift decreases both the equilibrium price and equilibrium quantity 3 When the supply of a good or service increases the equilibrium price falls and the equilibrium quantity rises a Movement along the demand curve to lower price and higher quantity 4 When the supply of a good or service decreases the equilibrium price rises and equilibrium quantity falls 5 In real life supply curves and demand curves for many goods and services shift quite often because the economic environment changes continually a When both shift in the same direction the change in equilibrium quantity is predictable but equilibrium price is not Both increase quantity rises Both decrease quantity falls In both cases price in ambiguous b When they shift in opposite directions the change in equilibrium price is predictable but equilibrium quantity is not Demand decreasesupply increase leads to price fall Demand increasesupply decrease lead to price rise 6 When there are simultaneous shifts of supply and demand curves curve that shifts the greater distance has the greatest effect on equilibrium pricequantity Chapter 4 Consumer and Producer Surplus Igt Aconsumer s willingness to pay is the maximum price at which he or she would buy a good 1 An individual will not buy a good if it costs more than this amount but will eagerly do so for less 2 We use the demand schedule to derive the demand curve based on the price at which each individual will buy the good or their willingness to pay a When graphed this may be shown as either a stair step form or a smooth curve as we have seen gtgt The net gain that a buyer achieves from the purchase of a good is called their individual consumer surplus l Willingness to payCost of39goodInd consumer surplus a Whenever the purchase price is less than the willingness to pay the consumer achieves some individual consumer surplus 2 The sum of all individual consumer surpluses by all the buyers of a good is called the total consumer surplus a The term consumer surplus refers to both individual and total consumer surplus 3 The total consumer surplus on a graph generated by purchases of a good at a given price is equal to the area below the demand curve but above that price Igt Changes in the price change consumer surplus as well 1 A fall in the price of a good increases consumer surplus a Price falls create gains to consumers who would have bought at the original price b Also creates a gain to consumers who are persuaded to buy at a lower price 2 The rise in the price of a good reduces consumer surplus in a similar fashion
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