chap 5 - 1 Chapter 5 Market Equilibrium Learning objectives...

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Unformatted text preview: 9/19/2010 1 Chapter 5 Market Equilibrium Learning objectives ` 1. Explain how the forces of supply and demand interact to determine the equilibrium price of a good and the amount of the good exchanged amount of the good exchanged ` 2. Show how shifts in supply and demand curves lead to new equilibrium prices and quantities ` 3. Explain why equilibrium results in allocation efficiency in a market ` 4. Understand the allocation forces at work in changes of demand and supply and the impact on consumer surplus 9/19/2010 2 Market equilibrium P($) Qd Qs 2 2 8 4 At P = $3, Q d > Q s (shortage) causes an increase in price 3 2 6 8 4 2 4 1 2 5 2 2 1 6 6 2 2 7 1 8 2 4 At P = $10, Q s > Q d (surplus) causes a decrease in price At P = $6, Q d = Q s 8 1 6 2 8 9 1 4 3 2 10 12 36 No surplus and no shortage so no change in price Æ EQUILIBRIUM Graphing equilibrium P 16 Equilibrium = (Q*, P*) 6 3 (20, 6) supply 3 1 8 demand Q 20 26 shortage 9/19/2010 3 Changes in equilibrium ` Shifts in demand ` Shifts in supply...
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This note was uploaded on 02/26/2012 for the course ECON 210 taught by Professor Staff during the Fall '08 term at Purdue.

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chap 5 - 1 Chapter 5 Market Equilibrium Learning objectives...

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