Chapter 8 part 2

Chapter 8 part 2 - Agec105 Chapter 8 Supply and Demand Part...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 8: Supply and Demand Part 2 Agec105
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Equilibrium: Putting Supply and Demand Together When a market is in equilibrium Both price of good and quantity bought and sold have settled into a state of rest Equilibrium price, p*, is a “Market clearing” price: Price at which quantity supplied equals quantity demanded. This quantity is called the Equilibrium quantity, Q*. The equilibrium price and equilibrium quantity can be found on the vertical and horizontal axes, respectively At point where supply and demand curves cross
Background image of page 2
Market Equilibrium E P* Demand Supply Q* Equilibrium price (p*) : the price that “balances” quantity supplied and quantity demanded. Quantity Price Equilibrium
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Excess Demand or Shortage E H J D S p* Excess Demand Quantity Price p 1 Q 1 Q 2 Suppose price starts out below the equilibrium level: Disappointed demanders will bid up the price, driving price up toward equilibrium. Q*
Background image of page 4
Excess Demand or Shortage Excess demand At a given price, the excess of quantity demanded over quantity supplied Price of the good will rise as buyers compete with each other to get more of the good than is available
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Excess Supply or Surplus K L E D S Excess Supply Quantity Price p* Q 1 Q 2 Q* Suppose price starts out of the equilibrium level: Disappointed supplier will undercut rivals’ prices, driving price down toward equilibrium. p 1
Background image of page 6
Excess Supply or Surplus Excess Supply At a given price, the excess of quantity supplied over quantity demanded Price of the good will fall as sellers compete with each other to sell more of the good than buyers want
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 Why Government Would Like to Control Prices?
Background image of page 8
9 Why Government Would Like to Control Prices? Government intervenes to regulate prices – Price Control . Why? Equilibrium: Quantity Demanded = Quantity Supplied Buyers would always like to pay less if they could Sellers would always like to get more money from what they sell Price Control Upper Limit – Price Ceilings Lower Limit – Price Floors
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10 Price Ceilings Government-imposed maximum price that prevents the price of a good from rising above a certain level in a market Short side of the Market Smaller of quantity supplied and quantity demanded at a particular price When quantity supplied and quantity demanded differ, short side of market will prevail Price ceiling creates a shortage and increases the time and trouble required to buy the good While the price decreases, the opportunity cost may rise
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/01/2010 for the course AGEC 105 taught by Professor Capps during the Fall '08 term at Texas A&M.

Page1 / 38

Chapter 8 part 2 - Agec105 Chapter 8 Supply and Demand Part...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online