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Principles of Micro

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Quantity of Ice-Cream Cones. 13. Equilibrium. quantity. Equilibrium price. Equilibrium ... the demand for ice cream . . . 2.00. 7. New equilibrium $2.50. 10 ... – PowerPoint PPT presentation

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Title: Principles of Micro


1
Principles of Micro
by Tanya Molodtsova, Fall 2005
  • Chapter 4 THE MARKET FORCES OF SUPPLY AND
    DEMAND

2
III. Supply and Demand Together Equilibrium
  • The point where the supply and demand curves
    intersect is called the markets equilibrium.
  • equilibrium a situation in which the price has
    reached the level where quantity supplied equals
    quantity demanded.

3
III. Supply and Demand Together Equilibrium
  • equilibrium price the price that balances
    quantity supplied and quantity demanded.
  • On a graph, it is the price at which the supply
    and demand curves intersect.
  • equilibrium quantity the quantity supplied and
    the quantity demanded at the equilibrium price.
  • On a graph it is the quantity at which the
    supply and demand curves intersect.

4
III. Supply and Demand Together
5
The Equilibrium of Supply and Demand
6
III. Supply and Demand Together
  • When market price the equilibrium price ? there
    will be a surplus of the good.
  • surplus a situation in which quantity supplied
    quantity demanded.
  • To eliminate the surplus, producers will lower
    the price until the market reaches equilibrium.

7
III. Supply and Demand Together
8
III. Supply and Demand Together
  • When price be a shortage of the good.
  • shortage a situation in which quantity demanded
    quantity supplied.
  • Sellers will respond to the shortage by raising
    the price of the good until the market reaches
    equilibrium.

9
III. Supply and Demand Together
10
III. Supply and Demand Together
  • Law of Supply and Demand the claim that the
    price of any good adjusts to bring the supply and
    demand for that good into balance.

11
Three Steps to Analyzing Changes in Equilibrium
  • Decide whether the event shifts the supply or
    demand curve (or both).
  • Decide in which direction the curve shifts.
  • Use the supply-and-demand diagram to see how the
    shift changes the equilibrium price and quantity.

12
Shifts in Curves vs. Movements Along Curves
  • A shift in the demand curve is called a "change
    in demand." A shift in the supply curve is
    called a "change in supply."
  • A movement along a fixed demand curve is called a
    "change in quantity demanded." A movement along
    a fixed supply curve is called a "change in
    quantity supplied."

13
How an Increase in Demand Affects the Equilibrium
14
How a Decrease in Supply Affects the Equilibrium
15
A Change in Both Supply and Demand
  • if you do not know the relative sizes of these
    shifts, the end effect on either equilibrium
    price or equilibrium quantity will be ambiguous.
  • The outcome depends on the relative sizes of the
    shifts in supply and demand
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