Chapter 10: The Partial Equilibrium Competitive Model Supply & Demand Review; Pg. 289 – 294 Market Reaction to a Shift in Demand • 2 impt facts re: short-run market equilb : 1) Indv’s impotence in market-b/c competitive model assumes there’s mny demanders, the shift of a single indv’s demand curve eg. outward=>~no effect on market demand curve, thus price will remain unchanged; vs. If many indvs experience shifts outward: • In thr D curves, entire market D curve may shift=>S-D balance re-est’d=>P↑=>Q↑; thus here P has acted to ration demand, as well as show 2) Short-run supply response- an ↑ in market P acts as an inducement to incr production; as this happens thus typical firm also incr’s its profits Shifts in Supply and Demand Curves: A Graphical Analysis • Change in # of firms shifts short-run (S-R) S curve; whn S/D curve shifts=>equilb P, Q changes Demand Curves Shift b/c: • Incomes change • P of substitutes/complements change • Preferences change
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