Lecture5--SUPPLYANDDEMANDANALYSIS

Lecture5--SUPPLYANDDEMANDANALYSIS - Supply and Demand...

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Unformatted text preview: Supply and Demand Analysis How free and competitive markets work to establish equilibrium prices and quantities sold Market Equilibrium ` A market is in equilibrium when price Supply Price adjusts so that quantity demanded equals uantity supplied quilibrium quantity supplied $3.00 Equilibrium point Demand Quantity 400 Market Equilibrium Market Equilibrium + A market is in equilibrium when Supply Price price adjusts so that quantity demanded quals quantity $4.50 equals quantity supplied price is greater $3.00 + If price is greater than equilibrium level there will be a Demand surplus which forces price down Quantity 400 Market Equilibrium Market Equilibrium + A market is in equilibrium when Supply Price price adjusts so that quantity demanded quals quantity equals quantity supplied price is less than $3.00 1.50 + If price is less than equilibrium level there will be a $1.50 Demand shortage which forces price up Quantity 400 Grandma’s Car n Increase in Demand An Increase in Demand rice Supply Price E1 P1 Initial Demand Quantity Q1 An Increase in Demand An Increase in Demand rice Supply Price E1 E2 P1 P2 Initial Demand New Demand Quantity Q1 Q Q 2 ’ An Increase in Demand...
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This note was uploaded on 10/13/2008 for the course EC 205 taught by Professor Hymen during the Fall '08 term at N.C. State.

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Lecture5--SUPPLYANDDEMANDANALYSIS - Supply and Demand...

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