2. Price Floor : Lower limit set for the price of a good 3. As sellers’ prices decline , the quantity demanded increase 4. As we move down the market demand curve , the desire for web design help doesn’t change, but the quantity people are able and willing to buy increases 5. When the price falls , the quantity demanded will equal the quantity supplied - equilibrium Market Shortage 1. The amount by which the quantity demanded > the quantity supplied at a given price; excess demand 2. The higher prices ensuring an upward movemen t along the market supply curve 3. The desire hasn’t changed, only the quantity supplied has responded to change in price 4. If it continues, the quantity supplied will equal the quantity demanded Self-Adjusting Prices 1. Whenever the market price is set above or below the equilibrium price, either a market surplus or a market shortage will emerge 2. To overcome a surplus or shortage, buyers and sellers will change their behavior 3. Sellers - reducing prices when a market surplus exists 4. If a shortage exists, buyers will compete for service by offering to pay higher prices 5. Only at the equilibrium price will no further adjustments be required 6. Sometimes the market price is slow to adjust, and a disequilibrium persists Ex: Tickets to rock concerts, football games, and other one-time events When tickets are sold initially at below-equilibrium prices, a market shortage is created. Scalpers resell tickets at prices closer to equilibrium, reaping a profit in the process. 7. Business firms can discover equilibrium prices by trial and error Changes in Equilibrium 1. No equilibrium price is permanent 2. When determinants of demand change - the demand curve has to be
redrawn 3. Such a shift of the demand curve will lead to a new equilibrium price and quantity 4. The equilibrium price will change whenever the supply or demand curve shifts A Demand Shift 1. The rightward shift of the demand curve illustrates an increase in demand 2. When demand increases , the equilibrium price rises from right to left (E1 to E2) A Supply Shift 1. The leftward shift of the supply curve illustrates a decrease in supply 2. This raises the equilibrium price from E1 to E3 3. Demand and supply curves shift only when their underlying determinants change- when ceteris paribus is violated 4. Whenever supply decreases - price rise , shift form right to left (E1 to E3)
Market outcomes 1. What to produce a. The mix of output society produces 2. How to produce a. The market mechanism also determines HOW goods are produced b. Producers use market prices to decide not only WHAT to produce but also what resources to use in the production process 3. For whom to produce a. The invisible hand of the market will determine who gets the goods produced b. Those consumers who are willing and able to pay Optimal, not Perfect 1. The outcomes of the marketplace aren’t perfect, they’re often optimal 2. Optimal outcomes are the best possible given our incomes and scarce resources
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