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Supply, Demand, and the Price System
Quick Review – the following information should be in your notes already.
Elasticity – a measure of responsiveness to price.
Elastic demand – consumers are very sensitive to price changes.
Inelastic Demand – consumers show a relatively small response to price changes.
Unit elastic – consumers show a proportional response to price changes.
Determinants of demand elasticity. Urgent? Amount of income required Are there substitutes?
Determinant of Supply Elasticity How fast can suppliers respond?
Supply Shifters Cost of inputs Taxes and Subsidies Productivity Technology Number of Suppliers
Government Regulations Expectations
Change / Shift in Supply P Q S1 S2
Change in quantity supplied P1 P2 Q1 Q2 S
Change In Demand P Q D1 D2
Demand Shifters Consumer Tastes Consumer Income Consumer Expectations Number of Consumers Expectations Substitutes / Complements
Change in Quantity Demanded P1 P2 D Q2Q1
Market Clearing Price
Supply is equal to demand
Surplus S D P1 QsQd
Shortage S D P Qs Qd
Two Types of Price Controls Price Ceilings Price Floors
Price ceilings and price floors distort market outcomes.
Price ceiling – rent control
If a price ceiling is lower than the natural market clearing price, a shortage occurs.
Shortage S D P $1200 QsQd 1000 2000
If a price floor is higher than the market clearing price, a surplus will occur.
Surplus of Labor S D P $10.00 QsQd
Supply and Demand: Market Equilibrium. Equilibrium When supply = demand, there is equilibrium in the market Equilibrium creates a single price and quantity.
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Role of Prices Economics Koehn/Molter. Review A demand schedule shows: – How much consumers are willing to buy a various prices. A supply schedule shows:
1 Excise Tax. 2 Change in supply If non-price determinants of supply should change the supply curve will shift and we say there has been a change in supply.
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Demand A Schedule Showing the Consumers are Willing and Able to Purchase At a Specified Set of Prices During A Specified Period of Time Amounts of a Good.
MID Year Graphs You should know and be able to draw, explain and label all parts.
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Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Repealing the Laws of Supply and Demand: Price Controls Price Ceiling u A legally.
P $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 Qs Qd ???
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Supply and Demand at Work 21.3 & What is Supply and Demand The amount of goods a producer is willing to sell at market prices. Opposite of demand.
Demand, Supply, Price. DEMAND Demand The desire, ability, and willingness to buy a product Demand Schedule- shows the amount demanded at every price.
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CH. 7: DEMAND AND SUPPLY A. DEMAND 1. “The MARKETPLACE” 2. DEMAND 3. MARKET 4. VOLUNTARY EXCHANGE 5. LAW OF DEMAND (P QD )
Main Definitions Market: –All situations that link potential buyers and potential sellers are markets. Demand: –A demand schedule shows price and quantity.
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Turn Off HP.
HouseholdsBusinesses Product Markets Factor Markets.
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Supply and Demand. The Law of Demand The law of demand holds that other things equal, as the price of a good or service rises, its quantity demanded falls.
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