Demand, Supply, and Equilibrium - Loudoun County Equilibrium Equilibrium price = “market clearing ... Supply/Demand/Equilibrium ... Demand, Supply, and Equilibrium

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  • Demand, Supply, and EquilibriumMicroeconomics Unit 2: Nature and Function of Product Markets

  • The Relationship Between Demand and Total/Marginal Utility Total Utility Marginal Utility The Law of Diminishing Marginal Utility

  • Demand

    Amounts of a product consumers are willing and able to buy

    Law of Demand = inverse or negative relationship between price and quantity demanded

    Pric

    e

    Quantity

    D

    D

  • Law of Demand

    Why? Price is an obstacle to buying Diminishing marginal utility

  • Determinants of Demand

    Consumer tastes/preferences # of buyers in the market Consumers incomes Income Effect

    Prices of related goods Substitute goods Substitution Effect

    Complementary goods Consumer expectations

  • Supply

    Amounts of a product that producers are willing and able to make available for sale

    Law of Supply = positive relationship between price and quantity supplied

    Pric

    e

    Quantity

    S

    S

  • Law of Supply

    Why? Price = incentive to sell more product Increases in marginal cost

  • Determinants of Supply

    Resource prices Technology Taxes and subsidies Prices of other goods Substitution in production

    Producer expectations # of sellers in the market

  • Market Equilibrium

    Equilibrium price = market clearing price

    Equilibrium price (Po) = A. Productive Efficiency B. Allocative Efficiency

    Market ensures MB MC Any price above equilibrium = surplus Any price below equilibrium = shortage

  • Producer and Consumer Surplus

    Consumer Surplus = the sum of the products of the prices and quantities consumers would have been willing to buy ABOVE the equilibrium price

    Producer Surplus = the sum of the products of the prices and quantities suppliers would have been willing to sell BELOW the equilibrium price

  • Producer and Consumer Surplus

  • Calculating Producer and Consumer Surplus Calculating Producer and Consumer

    Surplus

    http://youtu.be/nP3MIgMuw94

  • Price Ceilings

    Govt sets a maximum price sellers may charge consumers

    EX: rent controls, usury lawsPr

    ice

    Quantity

    S

    SD

    D

    Po

    Pc

    QoQs Qd

    Shortage

  • Price Floors

    Govt sets a minimum price buyers may pay sellers

    EX: crop price supports, minimum wagesPr

    ice

    Quantity

    S

    SD

    D

    Po

    Pf

    QoQd Qs

    Surplus

  • Maximum and Minimum Price Controls Complete the Worksheet on Maximum

    and Minimum Price Controls

  • Equilibrium Price and Quantity

    Complete the Worksheet on Equilibrium Price and Quantity

  • Greebies

  • Changes in Supply/Demand/Equilibrium s in Demand Raises or reduces both equilibrium price (Po)

    and equilibrium quantity (Qo) s in Supply Increase in S = lower Po, higher Qo Decrease in S = higher Po, lower Qo

  • Graph Shift

  • Changes in Supply/Demand/Equilibrium S increases, D decreases Qo depends on relative increase in S vs. D

    S decreases, D increases Qo depends on relative increase in S vs. D

    S decreases, D decreases If decrease in S > decrease in D = Po will

    increase, Qo will decrease If decrease in S < decrease in D = Po will

    decrease, Qo will decrease

  • Changes in Supply/Demand/Equilibrium S increases, D increases If increase in S > increase in D = Po will

    decrease Qo will increase If increase in S < increase in D = Po will

    increase, Qo will increase

  • Graph Shift

  • Changes in Demand/Supply/Equilibrium If increase in S EQUALs the increase in D

    then Po will stay the same. If decrease in S EQUALs the decrease in

    D then Po will stay the same

  • Closure: Exit Ticket Activity

    Download/access Socrative App Enter class K4AJ490T Answer question on Socrative App

    Demand, Supply, and EquilibriumThe Relationship Between Demand and Total/Marginal UtilityDemandLaw of DemandDeterminants of DemandSupplyLaw of SupplyDeterminants of SupplyMarket EquilibriumProducer and Consumer SurplusProducer and Consumer SurplusCalculating Producer and Consumer SurplusPrice CeilingsPrice FloorsMaximum and Minimum Price ControlsEquilibrium Price and QuantityGreebiesChanges in Supply/Demand/EquilibriumGraph ShiftChanges in Supply/Demand/EquilibriumChanges in Supply/Demand/EquilibriumGraph ShiftChanges in Demand/Supply/EquilibriumClosure: Exit Ticket Activity