Ch02 - Chapter2 TheBasicsofSupply andDemand 1 Topics...

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  1 Chapter 2 The Basics of Supply and Demand
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  2 Topics Supply and Demand The market mechanism Changes in market equilibrium Elasticities Predict changing market conditions Government intervention – price controls
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  3 Supply:   The relationship between the  Qs  and  P,      all other things constant. Costs of Production Labour Capital Raw Materials  Taxes Technology (P) Q Q S S =
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  4 The Supply Curve S Upward Sloping Higher price ⇒↑ Qs (All other factors held constant)  P   Movement along  curve Quantity   Price ($ per unit)   P 1 Q 1 P 2 Q 2
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  5 Change in Supply e.g.  raw material  costs At any P, now more  profitable Supply Increases P S Q P 2 P 1 Q 2 Q 1 S’ 2 If   some variable other  than price    Supply curve shifts
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  6 Movement Along Versus Shift Change in the “Quantity Supplied"  P   Movement along the curve  Change in Supply  ( something other than P  Shift Change in costs of production Taxes Technology…
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  7 Demand: The Demand Curve The relationship between  Q D  and  P,     all other things constant. Income Price of Related Goods Substitutes Complements Consumer tastes Population, Expectations, … (P) Q Q D D =
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  8 The Demand Curve D Downward Sloping P ⇒↑ Qd (All other things constant) Quantity   Price ($ per unit) P 2 Q 1 P 1 Q 2
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  9 D P Q D’ Q 1 P 2 Q 0 P 1 1 Change in Demand e.g.   Income At any P, now can buy  more… Demand Increases This assumes good is  normal Note the distinction: “∆Q D ”  “∆ in demand”  some variable other  than price    Demand curve shifts
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  10 2.2 The Market Mechanism D S ←Equilibrium P 0 Q 0 Quantity   Price ($ per unit) Market mechanism  tendency for P to change  until the market clears  (i.e. QD = QS)
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  11 The Market Mechanism D S P 0 Q 0 1. At P 1 > P 0 2. Surplus = Q s - Q D 1. P 1. Market adjusts to equilibrium P 1 Surplus Quantity   Price ($ per unit) Q S Q D
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  12 The Market Mechanism D S Q S Q D P 2 Quantity   Price ($ per unit) 1. At P 2 < P 0 2. Shortage =Q D - Q S 1. P 1. Market adjusts to equilibrium Q 3 P 0 Shortage Study Guide, p.12,  Exercise 1
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This note was uploaded on 09/25/2010 for the course ECON Econ 2296 taught by Professor W.graygiovannetti during the Fall '10 term at Langara.

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Ch02 - Chapter2 TheBasicsofSupply andDemand 1 Topics...

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