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Comm220 Ch 2 2.pdf

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COMM 220
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CHAPTER 2THE BASICS OF SUPPLY AND DEMAND Key Concepts and TopicsSupply and DemandThe Market MechanismChanges in Market EquilibriumElasticities of Supply and DemandUnderstanding and Predicting the Effects of Changing Market ConditionsEffects of Government InterventionPrice Controls Supply and DemandWhy and how prices changeHow world economic conditions affect market price and productionWhat happens when the government intervenes in a competitive marketThe impact of price controls minimum wages price supports and production incentives on the economyHow taxes subsidies tariffs and import quotas affect consumers and producers The Supply CurveThe relationship between the quantityof a good that producers are willing to sell and the price of the good holding other supplydetermining factors eg QP wages interest charges raw material costs etc constant QSS Priceper unit P The Supply Curve slopes upward 2 demonstrating that at higher pricesmore firms are able and willing toP 1increase output QuantityQ Q 12thSource Pindyck and Rubinfeld 2009 Microeconomics 7 Ed Pearson Prentice Hall Chapter 21When the supplydetermining factors change say lower higher production costs the entire supply curve shifts to the rightleftTherefore greater lesser quantity supplied at the same price or same quantity supplied at a lower higher price PP 3P 1P 2 QQ Q Q 231Change in Q caused by S Price changemovement along the supply curveChanges in supplydetermining factorsshift of the supply curve The Demand CurveThe relationship between the quantity of a good that consumers are willing to buy and the price of the good holding other demanddetermining factors eg incomes tastes weather prices of substitute and complementary goods etc constant QQP DDPriceper unitThe Demand Curve slopes downwarddemonstrating that less consumers areable and willing to buy at a higher price P 2 P 1 Quantity Q Q21 thSource Pindyck and Rubinfeld 2009 Microeconomics 7 Ed Pearson Prentice Hall Chapter 22
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