ECON-1010 Chapter Notes - Chapter 5: Price Ceiling, Economic Equilibrium, Equilibrium Point
12 May 2022
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MARKETS (RELATION OF SUPPLY AND DEMAND)
★Market: a collection of places, institutions, and means that allow individuals and
businesses to buy and sell goods and services, labor, stock, etc.
★2 important input markets:
○Labor market
○Capital market
★Shortage: quantity demanded greater than quantity supplied → causes price to
increase (theoretically until qd = qs)
★Price increases = quantity demanded decreases = quantity supplied increases
★Surplus: quantity demanded less than quantity supplied
★Equilibrium: quantity demanded = quantity supplied
○Equilibrium price and equilibrium quantity
■Will not change unless any of the other factors change
★The above process of adjustment to find equilibrium point is the law of supply
and demand
★Income increases → quantity demanded increases → shift in equilibrium point
(quantity supplied must increase)
★What happens if something like an increase in demand and supply happen at
the same time???
- Price ceiling: a legal maximum price
- If effective, it is below the equilibrium price
- Causes a shortage
- Price floor: a legal minimum price
- If effective, it is above the equilibrium price
- Causes a surplus
- Used extensively in agricultural products
❖Market: a place where households and firms meet to perform transactions
❖Supply and demand is relevant only if you have a non-monopoly market
structure
❖Markets: methods through which buyers and sellers come together and
determine the prices of goods and the quantities that will be exchanged
➢a.k.a. “where we trade”
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ECON-1010 Full Course Notes
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Document Summary
Market: a collection of places, institutions, and means that allow individuals and businesses to buy and sell goods and services, labor, stock, etc. Shortage: quantity demanded greater than quantity supplied causes price to increase (theoretically until qd = qs) Price increases = quantity demanded decreases = quantity supplied increases. Surplus: quantity demanded less than quantity supplied. Will not change unless any of the other factors change. The above process of adjustment to nd equilibrium point is the law of supply and demand. Income increases quantity demanded increases shift in equilibrium point (quantity supplied must increase) If effective, it is below the equilibrium price. If effective, it is above the equilibrium price. Market: a place where households and rms meet to perform transactions. Supply and demand is relevant only if you have a non-monopoly market structure. Markets: methods through which buyers and sellers come together and determine the prices of goods and the quantities that will be exchanged.
