xid-5309193_2 - Thurday, Sept. 8 1. From Tuesday: Law of...

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T hurday, Sept. 8 1. F rom Tuesday: Law of Demand : Price and quantity demanded (Qd) are inversely (or negatively) related - as price rises, quantity demanded falls. Law of Supply : Price and quantity supplied (Qs) are directly (or positively) related - as price rises, quantity supplied rises. Equilibrium: where quantity demanded = quantity supplied; equilibrium price (Pe) and quantity (Qe). If price is below equilibrium, Qd > Qs, shortage in the market; price will rise towards equilibrium. If price is above equilibrium, Qd < Qs, surplus in the market, and price will fall towards equilibrium. Demand curves reflect marginal valuation of the good or service - willingness to pay, based on marginal benefit of the good to the demander. Supply curves reflect marginal cost of production of the good or service - marginal valuation of resources (factors of production) in alternative uses. 2. What happens when supply, or demand, or both, change? Shift in supply and/or demand and effect on equilibrium; cases Change in market: Effect on market (Qe and Pe) 1. Increase in demand Increase in Qe and Pe 2. Decrease in demand Decrease in Qe and Pe 3. Increase in supply Increase in Qe, decrease in Pe 4. Decrease in supply Decrease in Qe, increase in Pe 5. Increase in demand, Increase in Pe, Qe indeterminate decrease in supply 1
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6. Increase in demand, Increase in Qe, Pe indeterminate increase in supply 7. Decrease in demand, Decrease in Pe, Qe indeterminate increase in supply 8. Decrease in demand, Decrease in Qe, Pe indeterminate decrease in supply. Algebraic example of demand and supply:
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This note was uploaded on 04/05/2012 for the course ECP 3302 taught by Professor Staff during the Fall '11 term at Florida State College.

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xid-5309193_2 - Thurday, Sept. 8 1. From Tuesday: Law of...

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