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Class4_new - Econ 100 Class 4&5: Market Equilibria...

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Econ 100 1 Winter 2012: Professor Bushnell Econ 100 Class 4&5: Market Equilibria James Bushnell
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Econ 100 2 Winter 2012: Professor Bushnell Market Equilibrium Equilibrium - a situation in which no one wants to change his or her behavior. excess demand the amount by which the quantity demanded exceeds the quantity supplied at a specified price. – Creates upward pressure on prices excess supply the amount by which the quantity supplied is greater than the quantity demanded at a specified price – Creates downward pressure on prices
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Econ 100 3 Winter 2012: Professor Bushnell Market Equilibrium p , $ per kg 220 176 D S e 233 246 194 207 Q , Million kg of po r k per y ear 0 3.95 3.30 2.65 Excess supply = 39 Excess demand = 39 Market equilibrium point!
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Econ 100 4 Winter 2012: Professor Bushnell Using Math to Determine the Equilibrium • Demand: Q d = 286 20 p • Supply: Q s = 88 + 40p • Equilibrium: Q d ( p ) = Q s ( p ) 286 20 p = 88 + 40p 60p = 198 P = $3.30 Q = 286 – 20(3.3) = 220
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Econ 100 5 Winter 2012: Professor Bushnell Shocking the Equilibrium The equilibrium changes only if a shock occurs that shifts the demand curve or the supply curve. These curves shift if one of the variables we were holding constant changes.
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Econ 100 6 Winter 2012: Professor Bushnell Equilibrium Effects of a Shift of a Demand Curve D 1 D 2 S 176 0 220 228 232 Q, Million kg of pork per year Excess demand = 12 3.30 3.50 e 2 e 1 p , $ per kg A $0.60 increase in the price of beef shifts the demand outward
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Econ 100 7 Winter 2012: Professor Bushnell Equilibrium Effects of a Shift of a Supply Curve S 1 S 2 Q, Million kg of pork per year 3.30 3.55 e 1 e 2 D p , $ per kg 176 0 220 205 215 Excess demand = 15 A $0.25 increase in the price of hogs shifts the supply curve to the left
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Econ 100 8 Winter 2012: Professor Bushnell
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Class4_new - Econ 100 Class 4&5: Market Equilibria...

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