b Supply demand curves intersect c Surplus quantity supplied quantity demanded

B supply demand curves intersect c surplus quantity

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b. Supply & demand curves intersect c. Surplus- quantity supplied > quantity demanded----excess supply i. Downward pressure on price 1. Movements along the demand & supply curves a. Increase in quantity demanded & decrease in quantity supplied. d. Shortage- quantity demanded > quantity supplied----excess demand i. Upward pressure on price 1. Movements along the demand & supply curves a. Decrease in quantity demanded & increase in quantity supplied. e. 3 steps to analyzing changes in equilibrium i. Decide whether the event shifts the supply curve, the demand curve, or in some cases, both curves ii. Decide whether the curve shifts to the right/left iii. Use the supply-&-demand diagram to see how the shift changes the equilibrium price & quantity f. Shifts vs. movements along the curves i. Shift in supply curve- change in supply ii. Shift in demand curve- change in demand iii. Movement along a fixed supply curve- change in quantity supplied iv. Movement along a fixed demand curve- change in the quantity demanded g. Law of supply & demand i. The price of any goods adjusts 1. To bring the quantity supplied & the quantity demanded for that good into balance.
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Microeconomics Final Exam Study Sheet ii. In most markets---surpluses & shortages are temporary. VIII. How prices allocate resources a. Prices i. Signals that guide the allocation of resources ii. Mechanism for rationing scarce resources iii. Determine who produces each good & how much is produced. Chapter 5 Elasticity & its Application (15% of exam) I. Elasticity of Demand a. Elasticity- measure of the responsiveness of quantity demanded or quantity supplied b. Price of elasticity of demand- how much the quantity demanded of a good responds to a change in the price of that good i. Percentage change in quantity demanded divided by the percentage change in price. c. Elastic demand- quantity demanded responds substantially to changes in price d. Inelastic demand- quantity demanded responds only slightly to changes in price. e. Determinants of price elasticity of demand i. Availability of close substitutes---goods w/ close substitutes=more elastic demand ii. Necessities (inelastic demand) vs. luxuries (elastic demand) iii. Definition of the market---narrowly defined markets=more elastic demand iv. Time horizon---demand is more elastic over longer time horizons. f. Computing the price in elasticity of demand- percentage change in quantity demanded divided by percentage change in price-----use absolute value (always positive). i. Midpoint method- 2 points: (Q1,P1) & (Q2,P2) 1. Price elasticity of demand= (Q2-Q1)/[(Q2+Q1)/2] (P2-P1)/[(P2+P1)/2] g. Variety of demand curves- the flatter the demand curve, the greater the price elasticity of demand i. Demand is elastic= price elasticity of demand > 1 1. Price & TR move in OPPOSITE directions (ex. if p. increases, TR decreases) ii. Demand is inelastic= price elasticity of demand < 1 1. Price & TR move in the SAME direction (ex. if p. increases, TR also increases) iii. Demand has unit elasticity= price elasticity of demand= 1 1. TR remains constant when the price changes iv.
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