ARE201Lecture9aNotes

- Lecture 9 Market Change 1 Markets are rarely"in equilibrium Something is always changing to change demand or supply(remember the"factors we

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Lecture 9: Market Change 1. Markets are rarely "in equilibrium". Something is always changing to change demand or supply (remember the "factors" we talked about that shift the demand and supply curves). One real benefit of economics is helping predict what happens to the equilibrium price and equilibrium quantity when something happens to change supply or demand. There are two situations in which to examine these changes: the "short run" and the "long run". The short run is the period of time during which the number of sellers is constant. Changes in production only occur from a fixed number of sellers. The long run is the period of time during which the number of sellers can change, so changes in production can also occur from either increases or decreases in the number of sellers. Short Run a. any factor that causes the demand curve to " increase" (more is bought at every price) will cause equilibrium quantity and equilibrium price to both increase 0 20 40 60 80 100 120 140 160 180 1 0 0 4 01 31 51 7 millions of gallons price per gallon ($) demand 1 supply demand 2 1 2 Example: An increase in income (if oil is a normal good), an increase in population, a decrease in car prices (cars and oil are complements), an increase in natural gas prices (oil and natural gas are substitutes), or an increase in preferences for oil would cause the demand curve to move from demand 1 to demand 2. The equilibrium price increases 1
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from $20 to $40, and the equilibrium quantity increases from 13 million to 15 million. Market equilibrium moves from point 1 to point 2. b. conversely, any factor that causes the demand curve to " decrease" (less is bought at every price) will cause equilibrium quantity and equilibrium price to both decrease 0 20 40 60 80 100 120 7 1 01 31 51 7 millions of barrels rice perbarrel($) demand 1 supply demand 3 1 2 Now the equilibrium price is $10 and the equilibrium quantity is 10 million (point 2).
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This note was uploaded on 10/22/2009 for the course ARE 201 taught by Professor Eryuruk during the Fall '08 term at N.C. State.

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- Lecture 9 Market Change 1 Markets are rarely"in equilibrium Something is always changing to change demand or supply(remember the"factors we

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