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September 26, 2013. Review Supply Packet Chapter 3 Notes: Market Equilibrium HW: Chapter 3 Problems, #1-3; Ch. 3 Appendix Problems, 1-3. Market Equilibrium. Equilibrium : where demand curve and supply curve intersect. Equilibrium Price : where buyers and sellers intentions meet (P)

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september 26 2013
September 26, 2013

Review Supply Packet

Chapter 3 Notes: Market Equilibrium

HW: Chapter 3 Problems, #1-3; Ch. 3 Appendix Problems, 1-3

market equilibrium
Market Equilibrium

Equilibrium: where demand curve and supply curve intersect.

Equilibrium Price: where buyers and sellers intentions meet (P)

Equilibrium Quantity: where buyers and sellers intentions meet (Q)

Surplus: Excess supply (drives prices down)

Shortage: Excess demand (drives prices up)

3-2

LO3

market equilibrium1
Market Equilibrium

200 Buyers & 200 Sellers

Market

Supply

200 Sellers

Market

Demand

200 Buyers

6

5

4

3

2

1

0

6,000 Bushel

Surplus

S

P

Qd

P

Qs

2,000

4,000

7,000

11,000

16,000

$5

4

3

2

1

$5

4

3

2

1

12,000

10,000

7,000

4,000

1,000

Price (per bushel)

3

7,000 Bushel

Shortage

D

2 4 6 8 10 12 14 16 18

7

Bushels of Corn (thousands per week)

NOTE: BOTH Qs and Qd on Axis

3-3

LO3

rationing functions of prices
Rationing Functions of Prices

The ability of the competitive forces of demand and supply to establish a price at which selling and buying decisions are consistent.

No burden & no inconvenience!

3-4

LO3

changes in demand and equilibrium

`

Changes in Demand and Equilibrium

`

Changes in Demand and Equilibrium

D increase:

P, Q

EQUILIBRIUM P & Q

D decrease:

P, Q

P

P

S

S

D2

D3

D1

D4

0

0

Decrease in demand

Increase in demand

NOTE: SUPPLY IS CONSTANT; DEMAND CHANGES

3-5

LO4

LO4

changes in demand and equilibrium1

`

Changes in Supply and Equilibrium

`

Changes in Demand and Equilibrium

S increase:

P, Q

EQUILIBRIUM P & Q

S decrease:

P, Q

P

P

S1

S4

S3

S2

D

D

0

0

Decrease in supply

Increase in supply

NOTE: DEMAND IS CONSTANT; SUPPLY CHANGES

3-6

LO4

LO4

government set prices
Government Set Prices
  • Price Ceilings
    • Set below equilibrium price
    • Rationing problem
    • Black markets
  • Example: Rent control

3-8

LO5

government set prices1
Government Set Prices

P

S

$3.50

P0

ceiling

3.00

PC

D

Shortage

Q

Qs

Q0

Qd

3-9

LO5

government set prices2
Government Set Prices
  • Price Floors
    • Prices are set above the market price
    • Chronic surpluses
  • Example: Minimum wage laws

3-10

LO5

government set prices3
Government Set Prices

P

S

Surplus

floor

$3.00

Pf

P0

2.00

D

Q

Qd

Q0

Qs

3-11

LO5

legal market for human organs
Legal Market for Human Organs
  • What if we created a legal market for human organs?
  • Positive effects
    • Increase the incentive to donate
    • Eliminate the persistent shortage of eyes, livers, hearts, kidneys, etc.

3-12

legal market for human organs1
Legal Market for Human Organs
  • Negative effects
    • Increases the cost of medical care
    • Diminishes the special nature of life by commercializing it

3-13

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