Econ_100_Ch3

Econ_100_Ch3 - ECON 100: Introduction to Microeconomic...

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Slide 1 of 42 ECON 100: Introduction to Microeconomic Theory Lecture 5 Yilan Xu
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Slide 2 of 42 Supply and Demand The model of supply and demand is a simple presentation of exchange. Every exchange involves both a buyer and a seller. So, to complete the model, supply and demand must be brought together.
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Slide 3 of 42 Equilibrium When the supply curve and the demand curve for a particular good are drawn on the same graph, a unique a point emerges – Equilibrium . § Graphically, equilibrium exists at the intersection of the supply curve and the demand curve. The price at this point is known as the Equilibrium Price , and the quantity at this point is called the Equilibrium Quantity . At the equilibrium price, quantity demanded equals quantity supplied.
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Slide 4 of 42 Equilibrium and the Adjustment Process Demand Curve Supply Curve 65 $30 Equilibrium Price Equilibrium Quantity Quantity of Oil (MBD) Price of Oil per Barrel Price is Determined by Supply and Demand
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Slide 5 of 42 Equilibrium and the Adjustment Process In a free market (a market free of outside interference) the equilibrium price and quantity are the only prices and quantities that are stable. At any other prices and quantities, economic forces naturally emerge in a free market and push those prices and quantities toward equilibrium.
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Slide 6 of 42 Excess Supply At prices greater than the equilibrium price, the quantity supplied is greater than the quantity demanded. Economists refer to this as Excess Supply or Surplus . In this situation sellers must reduce their prices to induce buyers to purchase all of this extra product. In a free market, price will continue to fall until equilibrium is reached.
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Slide 7 of 42 Excess Supply Excess Supply Drives Prices Down Quantity of Oil (MBD) Price per Barrel $50 Surpl us 32 100 Demand Curve Supply Curve 65 $ 3 0 Equilibrium Price Equilibrium Quantity
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Excess Demand At prices less than the equilibrium price, the quantity supplied is greater than the quantity demanded. Economists refer to this as Excess Demand or Shortage .
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Econ_100_Ch3 - ECON 100: Introduction to Microeconomic...

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