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Using Supply and Demand

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

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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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