Using Supply and Demand - in the future, then ................

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1 Advanced Supply and Demand 1. The impact of elasticity. 2. Changes in expected future prices. 3. Long run effects. Impact of Elasticity The relative impact of a curve shift on price and quantity depends on the elasticity of the curve that is not shifting. If the non-shifting curve is relatively elastic , then the main impact is on quantity . If the non-shifting curve is relatively inelastic , then the main impact is on price . How Expectations of Future Prices Affect Supply and Demand Consider a nonperishable good (or financial asset) which can be bought and held for future use and sale. If the market expects prices to rise
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Unformatted text preview: in the future, then ............. Expectations of Future Prices (2) Supply decreases now , because sellers wait to sell at higher prices. Demand increases now , because buyers stock up before prices rise. => The price rises now. In this way: Current prices move to reflect expected future prices. Long Run Effects LR curves are usually more elastic than SR curves. All SR and LR curves intersect initially. SR equilibrium occurs where (SR) D and S intersect. LR equilibrium occurs where LRD and LRS intersect. Rules for analyzing problems in which Demand or Supply is different in the LR:...
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This note was uploaded on 04/02/2008 for the course ECON 200 taught by Professor Cramer during the Spring '07 term at University of Arizona- Tucson.

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