Class01_18

Class01_18 - Class Notes(cover part of Chapter 3 in the...

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01/18/2008 Class Notes (cover part of Chapter 3 in the textbook) Class Outline Predicting changes in price and quantity Predicting changes in price and quantity 1. Changes in Demand Consider the market of croissants in equilibrium at point E. Suppose that consumers’ income increases Demand Shifts to the right, given that croissants are normal goods! The equilibrium price increases and so does the equilibrium quantity! Consider the croissant market is in equilibrium at E. Suppose that the price of cappuccino increases (Recall: Cappucino and Croissants are complements!) Demand Shifts to the left! p* D q q* E S D’ E’ 1 p
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The equilibrium price decreases and so does the equilibrium quantity! 2. Changes in Supply Consider the croissant market is in equilibrium at E. Suppose that the price of butter increases Supply decreases Supply shifts to the left! p* D q q* E S E’ S’ p 2 q* E S q p D D’ p*
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The equilibrium price increases and the equilibrium quantity decreases! Consider the croissants’ market is in equilibrium at E. Suppose a new technology
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Class01_18 - Class Notes(cover part of Chapter 3 in the...

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