Supply and Demand Supply and Demand Table of Contents The Basics The Law of Demand The Law of Supply...
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Supply and Demand
Supply and Demand Supply and Demand Table of Contents The Basics The Law of Demand The Law of Supply Equilibrium Price and Quantity Equilibrium and Disequilibrium
Supply and Demand Table of Contents The Basics The Law of
Demand The Law of Supply Equilibrium Price and Quantity Equilibrium
and Disequilibrium (2 slides) Shifts in Demand Shifts in Supply
Double Shifts in Supply and Demand Price Controls - Price Floors
and Price Ceilings Consumer and Produce Surplus Impacts of Price
Control on Consumer/Produce surplus and deadweight lose Price
Elasticity of Demand Price Elasticity of Supply Cross Price
Elasticity of Demand Income Elasticity of Demand Market Failures-
externalities
Slide 4
Supply and Demand The Basics Demand (D) (MB) Quantity (Q) Price
(P) Supply (S) (MC) Equilibrium (Qs= Qd) P e Q e TC Y X
Slide 5
Supply and Demand The Law of Demand Demand- Different
Quantities of goods and services that people are willing and able
to buy at different prices. Quantity (Q) Price (P) The Law of
Demand Price:Quantity Demanded Price and Quantity Demanded have an
Inverse Relationship Q1 P1 P2 Q2 3 reasons why Substitution effect
Income effect- loss of purchasing power. The more expensive the
less you can buy Law of Diminishing maximum utility - Demand also
is considered marginal benefits (MB) TC
Slide 6
051015202530 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00
Student Demand for a Slice of Pizza at a specific price P Qd
Slide 7
Supply and Demand The Law of Supply Supply- Different
Quantities of goods and services that people are willing and able
to produce at different prices. Quantity (Q) Price (P) The Law of
Supply Price:Quantity Supplied Price and Quantity Supplied have an
Direct Relationship Q1 P1 P2 Q2 Trade off between Labor and
Leisure. The more money that can be made the more likely you will
trade of leisure for labor. Opportunity Cost. Supply is also viewed
as Marginal Cost TC
Slide 8
Supply and Demand Equilibrium Equilibrium- The quantity where
price has adjusted so that quantity demanded is equal to quantity
supplied. The amount that the buyers are willing and able to
purchase matches the amount that producers are willing and able to
sell. TC Demand (D) Quantity (Q) Price (P) Supply (S) Equilibrium
(Qs= Qd) P e Q e In nature water seeks its own level. Price does
the same thing. Both Quantity supplied and Quantity demand works
towards each other. S=D MC= MB
Slide 9
Supply and Demand Equilibrium and Disequilibrium- Surplus TC
Demand (D) Quantity (Q) Price (P) Supply (S ) Equilibrium (Qs= Qd)
$5 P e Q e $20 Price Floor Qd Qs Surplus Surplus happens when
Quantity supplied is greater than the quantity demanded Almost
always result from price controls S > D or MC MSC @ Q fm
Solution: Because the demand has increased, the price may increase
as well. Government give a subsidy to consumer to help pay for the
extra cost.
Slide 44
Market Failure Positive Externalities (D) MSB (Q) (P) (S)-
private P fm Q fm TC S1- MSC Q optimal MSC= MSB Problem: At Q free
market, to little is being produced. MSB>MSC @ Q fm Solution:
The Government can give the private supplier an incentive to
increase the supply by paying them a subsidy to make up for the
decrease in price due to the increase in supply
Slide 45
Market Failure Negative Externalities (spillover cost) (D)= MSB
(Q) (P) (S) private P fm Q fm TC S1- msc msc= private cost +
external cost Q MSC= MSB Problem: At Q free market, to much is
being produced. MSB