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Lecture 5 - Supply and Demand (2) (Student)

# Lecture 5 - Supply and Demand (2) (Student) - Why does...

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Why does Supply slope upward? The Law of Increasing Costs To supply additional units of a good, producers have _________ opportunity costs, so the price must ______ to induce producers to supply greater quantities. See: Comparative Advantage of a Resource, from lecture 3.

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Combining Supply and Demand – Market Equilibrium Recall: Demand tells us the quantity that will be demanded (Q d ) at any given price (P). Recall: Supply tells us the quantity that will be supplied (Q s ) at any given price (P).
For a market to be in equilibrium, there cannot be excess demand ( > ), and there cannot be excess supply ( > ). Thus, what is the condition for market equilibrium? = When the market is in equilibrium, there is no tendency for change. Bowl of water

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Market Equilibrium – Page 55 in packet i. Graphically Price Quantity S D P E Q E
ii. Numerically – Given a Table Price: Monthly rent per apartment Q D Apartments per month Q S Apartments per month \$500 400,000 700,000 \$450 475,000 625,000 \$400 550,000 550,000 \$350 625,000 475,000 \$300 700,000 400,000 \$250 775,000 325,000 \$200 850,000 250,000 Where is the equilibrium in this market?

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Using Table Find the price where quantity demanded is equal to quantity supplied If there is no such point in the table, then find: Linear Equation for Demand and Equation for Supply Equilibrium Price and Quantity
iii) Algebraically (page 56 in packet) Demand Curve: Q D = 14 - 2P Supply Curve: Q S = 4 + 3P At equilibrium: = Solve for P E 14 = 10 = 10/5 = Use P E to find Q E Q E =

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Disequilibrium in the Market, Excess Supply – Page 57 At P 1 , Q S > Q D Excess supply puts ___________ pressure on the price. As the price _______: Q D _________ (__ to b, law of demand) Q S ______ (__ to b, law of supply) This sequence repeats until the market is in equilibrium. P Q S D P E Q E P 1 Q S at P 1 Q D at P 1 a b c
Disequilibrium in the Market, Excess Demand At P 1 , Q D > Q S Excess demand puts ________ pressure on the price.

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