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Unformatted text preview: Chapter 03 - Demand, Supply, and Market Equilibrium CHAPTER THREE DEMAND, SUPPLY, AND MARKET EQUILIBRIUM CHAPTER OVERVIEW This chapter provides an introduction to demand and supply concepts. Both demand and supply are defined and illustrated; determinants of demand and supply are listed and explained. The concept of equilibrium and the effects of changes in demand and supply on equilibrium price and quantity are explained and illustrated. The chapter also includes brief discussions of efficiency (productive and allocative), and price controls (floors and ceilings). INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Explain who and what demand and supply represent. 2. Differentiate between demand and quantity demanded; and supply and quantity supplied. 3. Graph demand and supply curves when given demand and supply schedules. 4. State the Law of Demand and the Law of Supply, and explain why price and quantity demanded are inversely related, and why price and quantity supplied are directly related. 5. List the major determinants of demand, and explain how a change in each will affect the demand curve. 6. List the major determinants of supply, and explain how a change in each will affect the supply curve. 7. Explain the concept of equilibrium price and quantity. 8. Illustrate graphically equilibrium price and quantity. 9. Explain the rationing function of prices. 10. Define productive and allocative efficiency, and explain how competitive markets achieve them. 11. Explain and graph the effects of changes in demand and supply on equilibrium price and quantity, including simultaneous changes in demand and supply. 12. Define price ceilings and price floors, and provide examples. 13. Graph and explain the consequences of government-set prices. 14. Define and identify terms and concepts listed at the end of the chapter. LECTURE NOTES I. Learning objectives In this chapter students will learn: A. What demand is and what affects it. B. What supply is and what affects it. C. How supply and demand together determine market equilibrium. D. How changes in supply and demand affect equilibrium prices and quantities. 3-1 Chapter 03 - Demand, Supply, and Market Equilibrium E. What government-set prices are and how they can cause product surpluses and shortages. II. Markets A. A market, as introduced in Chapter 2, is an institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of particular goods and services. B. This chapter focuses on competitive markets with: 1. a large number of independent buyers and sellers. 2. standardized goods. 3. prices that are discovered through the interaction of buyers and sellers. No individual can dictate the market price....
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- Spring '09