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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. Equilibrium : where demand curve and supply curve intersect. Equilibrium Price : where buyers and sellers intentions meet (P)

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September 26, 2013

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  1. September 26, 2013 Review Supply Packet Chapter 3 Notes: Market Equilibrium HW: Chapter 3 Problems, #1-3; Ch. 3 Appendix Problems, 1-3

  2. 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

  3. 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

  4. 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

  5. ` 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

  6. ` 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

  7. Complex Cases 3-7 LO4

  8. Government Set Prices • Price Ceilings • Set below equilibrium price • Rationing problem • Black markets • Example: Rent control 3-8 LO5

  9. Government Set Prices P S $3.50 P0 ceiling 3.00 PC D Shortage Q Qs Q0 Qd 3-9 LO5

  10. Government Set Prices • Price Floors • Prices are set above the market price • Chronic surpluses • Example: Minimum wage laws 3-10 LO5

  11. Government Set Prices P S Surplus floor $3.00 Pf P0 2.00 D Q Qd Q0 Qs 3-11 LO5

  12. 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

  13. 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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