Intermediate Micro Economics Chapter 2 #1

Changes in Market Equilibrium #3

Changes in any one or combination of these variables (shifters) can cause a change in the equilibrium price and or-quantity.

Demand Curve changes (Quantity and demand)

Demand: shown by shifting the entire demand curve. Quantity: shown by movements along the demand curve.

Changes in Market Equilibrium #1

Equilibrium prices are determined by the relative level of supply and demand.

What happens when there is a shortage?

Excess demand. producers raise prices, quantity demanded decreases and quantity supplied increases. The market continues to adjust until the new equilibrium price is reached.

Market Summary #3

Markets must be competitive for the mechanism to be applicable (efficient?)

Demand Curve is determined by

Non-price demand-determining variables, such as, income, price of related goods, and tastes.

Supply Curve is determined by

Non-price supply determining variables as such as the cost of labor, capital and raw materials.

Suppy Curve

Shows how much of a good producers are willing to sell at a given price, holding constant other factors that might affect quantity supplied.

Changes in Market Equilibrium #2

Supply and demand are determined by particular values of supply and demand determining variables (shifting of supply and demand).

Market Summary #1

Supply and demand interact to determine the market-clearing price

Supply Curve changes (Quantity and Supply)

Supply: changes in the supply are shown by shifting the entire supply curve. Quantity: changes in quantity supplied are shown by movements along the supply curve and are caused by a change in the price of the product.

Market Mechanism

Tendency in a free market for price to change until the market clears.

Demand Curve

The demand curve shows how much of a good consumers are willing to buy as the price per unit changes holding non-price factors constant.

What happens when a surplus occurs?

There is an excess supply, producers lower prices, Quantity demanded increases and quantity supplied decreases. The market continues to adjust until the equilibrium price is reached.

Market Summary #2

When not in equilibrium, the market will adjust to alleviate a shortage or surplus ad return the market to equilibrium.

Shifts in supply and demand

When supply and demand change simultaneously, the impact on the equilibrium price and quantity is determined by: 1. The relative size and direction of the change. 2. The shape of the supply and demand models.

Surplus

When the market price is above the equilibrium.

Market Clearing Price

is also known as the equilibrium price.