ECO1010S 2018 Lecture Pack 3.pptx

ECO1010S 2018 Lecture Pack 3.pptx - Demand and Supply in...

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Demand and Supply in Action
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Ceteris paribus, the higher the price of a good, the lower the quantity demanded Ceteris paribus, the lower the price of a good, the higher the quantity demanded Law of Demand
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Summary of Demand
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Supply graph Other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied.
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Summary of Supply
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Market Equilibrium An equilibrium is a situation in which opposing forces balance each other. Equilibrium in a market occurs when the price balances the plans of buyers and sellers. Equilibrium price is the price at which the quantity demanded equals the quantity supplied. Equilibrium quantity is the quantity bought and sold at the equilibrium price.
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Equilibrium using the graph Excess Demand Excess Supply
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Demand and Supply in Action The focus now will be to see Demand and Supply in action. Once we’ve settled at equilibrium, what actually happens in our D&S model if there is an external (exogenous) shock to our model.
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Increase in Demand Q E S 1 P E D 1 Price (rands) P 1 D 2 Q 1 Adjustment Process The market is in equilibrium at E0, PE, QE Demand increases due to a non-price determinant of demand which shifts the curve to the right At the original price, Qd > Qs which causes a shortage in the market When there’s a shortage consumers act first by bidding up the price which causes a slide along the demand curve When producer see the price increasing they are willing to supply more which cause a slide along the supply curve A new equilibrium occurs at E1, P1, Q1 Price has increased and quantity demanded has increased.
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Increase in Supply Q E S 1 P E D 1 Price (rands) P 1 S 2 Q 1 Adjustment Process The market is in equilibrium at E0, PE, QE Supply increases due to a non-price determinant of supply which shifts the curve to the right At the original price, Qs > Qd which causes a shortage in the market When there’s a surplus producers act first by lowering the price When consumers see the price decreasing they are willing to demand more which cause a slide along the demand curve A new equilibrium occurs at E1, P1, Q1 Price has decreased and quantity has increased.
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Decrease in Demand Adjustment Process The market is in equilibrium at E0, P0, Q0 Demand decreases due to a non-price determinant of demand which shifts the curve to the left At the original price Qs > Qd which causes a surplus in the market When there’s a surplus producers act first by lowering the price which causes a slide along the supply curve When consumers see the price decreasing they are willing to buy more which cause a slide along the demand curve A new equilibrium is reached at E1, P1, Q1 Price has decreased and quantity demanded has decreased.
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Decrease in Supply Adjustment Process The market is in equilibrium at E0, P0, Q0 Supply decreases due to a non-price determinant of supply
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