Shortage when the quantity demanded is greater than the quantity supplied How

Shortage when the quantity demanded is greater than

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Surplus: when the quantity supplied is greater than the quantity demanded. Shortage: when the quantity demanded is greater than the quantity supplied. How Markets Eliminate Surpluses and Shortages: The interaction of demand and supply determines the equilibrium price Demand and Supply Both Count: Lesson 3 Page 12
Neither consumers nor firms dictate what the equilibrium price will be. No firm can sell anything at any prices unless it can find a willing buyer. No consumer can buy anything at any price without finding a willing seller. The interaction of demand and supply determines the equilibrium price 3.4 The Effect of Demand and Supply Shifts on Equilibrium: When the supply curve shifts to the right there will be a surplus at the original equilibrium price. The surplus is eliminated as the equilibrium falls to P 2 and the equilibrium quantity rises from Q 1 to Q 2 . Supply Shifts & Equilibrium: When the demand curve shifts to the right there will be a shortage at the original price. The shortage is eliminated as the equilibrium rises to P 2 and the equilibrium quantity rises from Q 1 to Q 2 . Demand Shifts & Equilibrium: Demand and Supply Equations: Q d =Q s Consumer surplus and producer surplus: Sum of consumer surplus and producer surplus = net benefit all renters and landlords receive from participating in the market for apartments Lesson 3 Page 13
Used to explain how prices are determined Every model will relate to supply and demand Must make some assumption The supply and demand model is the most powerful tool in economics. Assume analyzing a perfectly competitive market Perfectly competitive market: a market with many buyers and sellers, all firms are selling identical products, and no barriers to new firms entering the market. Lesson 3: P increases, Q d = decreases Law of Demand: states that holding all else constant, when the price of a product falls, the quantity demanded of that will increase and vice versa. Demand: Ex) Pepsi prices increase -> coke-a-cola bought more. Substitution effect: when consumers buy less of a product when the prices go up because it is a relatively more expensive than other products. Income effect: when consumers buy less of a product when the price goes up because it now takes a larger share of their income. Why is Demand Downward Sloping: Change in demand: when the entire demand curve shifts. This is because of an exogenous factor changes your desire to purchase a product. Quantity demanded: desire to purchase a product changes because the price changes. This is an endogenous change which equals a movement along the curve. Change in Demand vs Change in Quantity Demanded: Notes from Class Lesson 3 Page 14
Income 1. Price of a related goods 2. Taste and preference 3. Population of demographics 4. Expected future prices 5.