AGEC 105 Lecture Notes - Lecture 11: Time Horizon, Economic Surplus, Price Floor

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Topics of discussion: putting together supply and demand, market equilibrium, excess supply and excess demand, consumer, producer, and total surplus, price elasticity of supply, excise tax. When a market is in equilibrium: both prices of good and quantity bought and sold have settled into a state of rest. E(cid:395)uili(cid:271)(cid:396)iu(cid:373) p(cid:396)i(cid:272)e, p*, is a (cid:862)ma(cid:396)ket clea(cid:396)i(cid:374)g(cid:863) p(cid:396)i(cid:272)e: the price at which quantity supplied equals quantity demanded, the quantity is called the equilibrium quantity, q* The equilibrium price and equilibrium quantity can be found on the vertical and horizontal axes, respectively: at the point where the supply and demand curves cross. Equilibrium price (p*): the p(cid:396)i(cid:272)e that (cid:862)(cid:271)ala(cid:374)(cid:272)es(cid:863) (cid:395)ua(cid:374)tity supplied a(cid:374)d (cid:395)ua(cid:374)tity de(cid:373)a(cid:374)ded. Suppose price starts out below the equilibrium level: disappointed demanders will bid up the price, driving price up toward equilibrium. Excess demand: at a given point, the excess of quantity demanded over quantity supplied.

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