Supply, Demand, and Market Equilibrium. Perfectly Competitive Market. supply and demand—the most important tool of economic analysis—the simplest! The model of supply and demand explains how a perfectly competitive market operates.
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Supply, Demand, andMarket Equilibrium
Marginal PRINCIPLEIncrease the level of an activity if its marginal benefit exceeds its marginal cost; reduce the level of an activity if its marginal cost exceeds its marginal benefit. If possible, pick the level at which the activity’s marginal benefit equals its marginal cost.
A change in price causes a change in quantity demanded.
A change in demand (caused by changes in something other than the price of the good) shifts the entire demand curve.
Change in Quantity Demanded versus Change in Demand
A change in price causes a change in quantity supplied.
A change in supply (caused by changes in something other than the price of the good) shifts the entire supply curve.
Change in Quantity Supplied versus Change in Supply
The equilibrium price will decrease and the equilibrium quantity will increase.
Both the equilibrium price and the equilibrium quantity will increase.
Predicting the Effects of Changes in Demand
Predicting the Effects of Changes in Supply
Value of Love
Opportunities for Love
perfectly competitive market
individual demand curve
law of demand
change in quantity demanded
market demand curve
change in quantity supplied
market supply curve
change in demand
change in supply