MGEA02H3 Lecture 2: Week 2 study guide

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA02H3
• Professor: Gordon Cleveland

Document Summary

N market any situation in which buyers and sellers can negotiate the exchange of goods or services. An increase in demand creates a shortage at the initial equilibrium price, and the unsatisfied buyers bid up the price. This rise in price causes a larger quantity to be supplied with the result that at the new equilibrium at a higher price: a decrease in demand (the demand curve shifts to the left). A decrease in demand creates a surplus at the initial equilibrium price, and the unsuccessful sellers bid the price down. As a result, less of the product is supplied and offered for sale. At the new equilibrium, both price and quantity exchanged are lower than they were originally: an increase in supply (the supply curve shifts to the right). An increase in supply creates a surplus at the initial equilibrium price, and the unsuccessful sellers force the price down.