ECON 1010 Lecture Notes - Lecture 5: Price Signal, Shortage, Invisible Hand
17 Dec 2018
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Lecture 5: coordinating smart choices: demand and supply (look at powerpoint for extra notes) Markets connect competition between buyers, competition between sellers, and cooperation between buyers and sellers. When there are shortages, competition between buyers drives prices up. When there are surpluses, competition between sellers drives prices down: prices are the outcome of a market process of competing bids (from buyers) and offers (from sellers, frustrated buyers market price too low. Shortage, or excess demand quantity demanded exceeds quantity supplied. Shortages create pressure for prices to rise. Rising prices provide signals and incentives for businesses to increase quantity supplied and for consumers to decrease quantity demanded, eliminating the shortage: frustrated sellers market price too high. Surplus, or excess supply quantity supplied exceeds quantity demanded. Surpluses create pressure for prices to fall. Falling prices provide signals and incentives for businesses to decrease quantity supplied and for consumers to increase quantity demanded, eliminating the surplus.
