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Supply and Demand Lesson

Supply and Demand Lesson - Market Equilibrium When Qs>Qd...

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Quantity Demanded = f(Price, Spendable Income, Tastes, Prices of related goods, Number of buyers, expected future price changes) Change in Demand = Change in Price (not vice versa) Supply Profit = Revenue – Costs Profit = (PxQ) – Costs Profit/Q = Price – Costs/Q (Per Unit) Determinants of Supply (Change in Supply) • Input Prices • Technology • Numbers of sellers • Prices of substitutes in production Assume Barrel of Oil’s price increases from $70 to $140 • Profit/Q = Price – Costs/Q (Per Unit) • Profit per unit decreases, Quantity Supplied decreases • Shift in Supply = Decrease
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Unformatted text preview: Market Equilibrium When Qs>Qd, surplus occurs Price will decrease, Increase Qd and Decrease Qs Barring Price Floors Case One: • Change in tastes of good, Increase • Increase Demand, Increase P+Q and equilibrium Case Two: • Change in technology (Increase in efficiency in production) • Increase Supply, Decrease P, Increase Q Case Three: 1) Change in Demand: a) Some increase in money income b) Change in tastes in favor c) Decrease prices of compliments d) INCREASE 2) Change in Supply: a) Change in Technology INCREASE...
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