ECON-2110 Lecture Notes - Lecture 9: Excess Supply, Shortage, Demand Curve

46 views2 pages
27 Dec 2015
Department
Course
Professor
ECON 2110: Intro to Microeconomics
September 30
Topic 3c: Putting Supply and Demand together - “Where do prices come from?”
“Equilibrium” price and quantity =
balance
- in markets, we see ONE price
1. What happens where D and S intersect? (Demand and Supply curves)
The intersection = equilibrium (which is market price and quantity…
what we see on market)
Quantity supplied > Quantity demanded ---- excess supply (more units
for sale than demanded)
QS < QD ---- excess demand (more units demanded than are supplied)
** If we see change in either price or quantity in a market, we can conclude
that supply or demand has changed
Topic 3d: Shifts in Demand and Supply OR “Why do market prices and quantities
change?” (Why&How)
Remember: equilibrium is where Qd = Qs
Law of Supply and Demand: price of any good adjusts to bring quantities of
the good supplied and demanded into balance
Excess demand – price bid up Excess supply – price bid down
If we are in equilibrium, why do prices change? Demand or supply
changed
1. Changes in P and Q are frequent
Soybean prices fall..why? good crops = more supply = prices fall
2. Why do Supply and Demand change?
a. D and S curves are ceterus paribus (all else held constant) concepts
b. Demand – MB/WTP MB change = D changes
c. Supply – MC/WTS MC change = S changes
Demand / Supply curves will shift
3. Factors that Shift Demand
a. Tastes and Preferences – not subject to dispute
Unobservable (not useful for predictions)
Demand curve drawn with tastes held constant
b. Income / Wealth
When people become wealthier, demand for a good may rise or
fall depending
Normal good = demand increases when income increases
Example: designer purses, jewelry, etc
Inferior good = demand decreases when income increases
Example: Ramen noodles
Unlock document

This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.

Already have an account? Log in

Get OneClass Notes+

Unlimited access to class notes and textbook notes.

YearlyBest Value
75% OFF
$8 USD/m
Monthly
$30 USD/m
You will be charged $96 USD upfront and auto renewed at the end of each cycle. You may cancel anytime under Payment Settings. For more information, see our Terms and Privacy.
Payments are encrypted using 256-bit SSL. Powered by Stripe.