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Supply, Demand, and the Price System. Quick Review – the following information should be in your notes already.

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Presentation on theme: "Supply, Demand, and the Price System. Quick Review – the following information should be in your notes already."— Presentation transcript:

1 Supply, Demand, and the Price System

2 Quick Review – the following information should be in your notes already.

3 Elasticity – a measure of responsiveness to price.

4 Elastic demand – consumers are very sensitive to price changes.

5 Inelastic Demand – consumers show a relatively small response to price changes.

6 Unit elastic – consumers show a proportional response to price changes.

7 Determinants of demand elasticity. Urgent? Amount of income required Are there substitutes?

8 Determinant of Supply Elasticity How fast can suppliers respond?

9 Supply Shifters Cost of inputs Taxes and Subsidies Productivity Technology Number of Suppliers

10 Government Regulations Expectations

11 Change / Shift in Supply P Q S1 S2

12 Change in quantity supplied P1 P2 Q1 Q2 S

13 Change In Demand P Q D1 D2

14 Demand Shifters Consumer Tastes Consumer Income Consumer Expectations Number of Consumers Expectations Substitutes / Complements

15 Change in Quantity Demanded P1 P2 D Q2Q1

16 Equilibrium Price

17 Market Clearing Price

18 Supply is equal to demand

19 Surplus S D P1 QsQd

20 Shortage S D P Qs Qd

21 Two Types of Price Controls Price Ceilings Price Floors

22 Price ceilings and price floors distort market outcomes.

23 Price ceiling – rent control

24 If a price ceiling is lower than the natural market clearing price, a shortage occurs.

25 Shortage S D P $1200 QsQd

26 If a price floor is higher than the market clearing price, a surplus will occur.

27 Surplus of Labor S D P $10.00 QsQd

28 Price Supports


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