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Lecture 7 Feb 4

# Lecture 7 Feb 4 - Announcements On Monday we will have an...

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Announcements On Monday we will have an experiment in class – bring your laptop. EVERYONE should do the prep problems for Monday’s experiment – they are graded. Register your iClicker NOW if you have not done so. The “skip” schedule is on BB under course docs. 1 of 46

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2 of 46 MARKET EQUILIBRIUM Let’s put our supply and demand curves together in a “market” equilibrium The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.
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Equilibrium Note: Equilibrium is not just where the quantity bought is equal to the quantity sold. This is always true. In order for something to have been bought it must be sold and vice versa. Therefore this is not a correct definition. Need curves to be intersecting—at that point, quantity supplied is equal to quantity demanded . 4 of 46
5 of 46 MARKET EQUILIBRIUM EXCESS DEMAND excess demand or shortage The condition that exists when quantity demanded exceeds quantity supplied at the current price.

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6 of 46 MARKET EQUILIBRIUM Excess Demand, or Shortage When quantity demanded exceeds quantity supplied, price tends to rise. When the price in a market rises, quantity demanded falls and quantity supplied rises until an equilibrium is reached at which quantity demanded and quantity supplied are equal.
7 of 46 MARKET EQUILIBRIUM EXCESS SUPPLY excess supply or surplus The condition that exists when quantity supplied exceeds quantity demanded at the current price.

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8 of 46 MARKET EQUILIBRIUM Excess Supply, or Surplus When quantity supplied exceeds quantity demanded at the current price, the price tends to fall. When price falls, quantity supplied is likely to decrease and quantity demanded is likely to increase until an equilibrium price is reached where quantity supplied and quantity demanded are equal.
Supply and Demand Using this supply and demand model, we can predict that: 1.Excess supply (relative to demand) leads to a decrease in Price 2.Excess demand (relative to supply) leads to an increase in Price.

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