{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chs12,13 - Chapter 12 Demand and Supply Price Determination...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 12: Demand and Supply Price Determination - the first step to determining the equilibrium price of an object is to superimpose the demand and supply curves on the same daigram. The price and quantity at which they intersect is the equilibrium price and equilibrium quantity of production. When the price of a product intersects the supply graph at a point higher than the equilibrium price, the quantity sold exceeds the quantity demanded >> hence there is a surplus. The converse is also true. SURPLUS CAUSES DOWNWARD PRESSURE ON PRICE. if the price is below the equilibrium, the quantity demanded is higher than the quantity supplied hence there is a shortage. SHORTAGE CAUSES AN UPWARD PRESSURE ON PRICE. Demand Shifts - As demand increases, both the equilibrium price and the equilibrium quantity increase. If the demand decreases, the equilibrium price and quantity decrease. (See the five different demand shifters) 1. Changes in money incomes: as the incomes of people increases, their demand for superior goods increases whereas the demand for inferior goods decreases. This leads to a shift in the equilibrium price and quantity. 2. Changes in Prices of Related goods: If the price of a substitute good increases, then the demand for that goods substitute will increase leading to an increase in demand. The converse is also true. An increase in the price of a complementary good leads to the demand for that good decreasing which makes sense >> However, the demand for that good's complement will also decrease causing the equilibrium price and quantity to decrease. The converse is also true.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern