251Ch3lecture7Notes - Chapter 3: Demand and Supply Lecture...

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1 Chapter 3: Demand and Supply Lecture 7: Equilibrium and changes in equilibrium
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Demand and supply together
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Ch3: Demand and Supply 3 Demand and Supply Together P 12 6 Q 2 S D
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Ch3: Demand and Supply 4 Surplus and Shortage • P is “too high” → Surplus (Q s > Q d ) → P starts to fall • P is “too low” → Shortage (Q s < Q d ) → P starts to rise
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Ch3: Demand and Supply Lecture 7: Equilibrium and changes in equilibrium 5 Demand and Supply Together Use earlier equations for demand and supply • D : Q d = -1/2 P + 6 or P = -2 Q d + 12 • S : Q s = 2 P - 4 or P = 1/2 Q s + 2
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Equilibrium • Set D = S -1/2 P + 6 = 2 P - 4 -P + 12= 4 P – 8 5 P = 20 P*= $4 Q* = 4
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Graph of equilibrium P 12 4 4 6 Q 2 S D Equilibrium (Q*, P*) = (4, 4)
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Ch3: Demand and Supply 8 Changes in Equilibrium • Changes in Demand = SHIFTS • ↑ in income (assuming Thin Mints are normal goods) → ↑ in D for Thin Mints (shift to right)
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Effect of increase in demand
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10 Increase in demand
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This note was uploaded on 09/21/2011 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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251Ch3lecture7Notes - Chapter 3: Demand and Supply Lecture...

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