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Module 5: Supply and Demand: Introduction and Demand

Supply and Demand: A Model of a Competitive Market


o Market is a group of producers and consumers who exchange a good or service for
payment.
o A competitive market is a market in which there are many buyers and sellers of the
same good or service, none of whom can influence the price at which the good or
service sold
o The supply and demand model is a model of how a competitive market works.
The demand curve
The supply curve
The set of factors that cause the demand curve to shift and set of the
factors that cause shift
The market equilibrium which includes the equilibrium price and the quantity
the way that the market equilibrium changes when the supply curve changes.
The Demand Curve
o Demand curve is one of the key elements of the supply and demand model.
o The demand schedule shows how much of a good or service consumers will be willing
and able to buy at different prices.
o The quantity demand is the actual amount of a good or service that consumers are
willing and able to buy at some specific price.
o A demand curve is a graphical representation of the demand schedule. It shows the
relationship between quantity demand and prices.
o The law of demand says that a higher price for a good or service all other things
being equal leads people to demand a smaller quantity of that good or service.
Shift of the Demand Curve.
o All other things being equal
o A change in demand is a shift of the demand curve which changes the quantity
demanded at any given price.
o A movement along the demand curve is a change in the quantity demanded of a good
that is the result of a change in the goods price.
Understanding Shifts of the Demand Curve
o Increase in demand is when there are a rightward shift.
o Leftward Shift is when there is something bad at any given price consumers demand
and a smaller quantity of a good or service.
o 5 Principle
Changes in the prices of related goods or services
Changes in income
Changes in tastes
Changes in expectations
Changes in the number of Consumers
o Changes in the prices of Related Goods or services
Two goods are substitutes if a rise in the price of one of the goods leads to
an increase in the demand for the other good.
Two goods are complements if a rise in the other good is caused by the raise
of one good with a decrease in the other
When a rise in income increases the demand for a good the normal case it is
a normal good.
When a rise in the income decreases the demand for a good it is an inferior
good.
o Change in tests
Changes in the preferences
o Changes in Expectations
Changes that are in the future incomes also leads to changes in demand
o Changes in the number of consumers
An indicial demand curve illustrates the relationship between quantity
demanded and price for an indicial consumer
Check your Understanding
1. a. The quanitity of the umbrellas demand is higher at the price on a rainy day than on a dry
day. This is the rightward shift of the demand curve due to how the quanity demanded
rices. This shows how it can be sold at a higher prices.
b. THe quanity of the weekend calls demand a rise in the resonses of a reduction this is the
movment along with the demand curve for the weekend.
c. The demand for the roses increases the week of Valnentiens which is a rightward shift of
the demand curve.
d.The quanity of the gasoline demanded falls in the responses to the price. THis moment is
along the curve.
Multiple Choice
1. e
2. a
3. c
4. d
5. a
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Module 6 Supply and Demand Supply and equilibrium
The Supply Curve
o The quantity supplied is the actual amount of a good or service produced are willing
to sell at some specific prices
The supply schedule and the Supply Curve
o A supply schedule shows how much a good or service produces will supply at
different prices
o A supply curve shows the relationship between quantity supplied and price
o The law of supply says that other things being equal the price and quantity supplied
of a good are possibility related
o Shifts of the Supply Curve
o A change in supply is a shift of the supply curve which changes the quantity supplied
at any given price.
o A movement along the supply curve is a change in the quantity supplied of a good
that is the result of a change in that goods price
Understanding Shifts of the supply Curve
o Changes in input prices
An input is anything that is used to produce a good or service
o Changes in the prices of related goods or services
Substitution of the producers in the complements in the production
o changes in technology
o Changes in expectations
o Changes in the number of producers
Supply Demand and Equilibrium
o An economic situation is in equilibrium when no in ducal would be better off doing
something different
o A competitive market is in equilibrium when price has moved to a level at which the
quantity demanded of a good equals the quantity supplied of the good. The price at
which this takes place is the equilibrium price also referred to as the market
clearing price also referred to the market clearing price. The quantity of the good
bought and sold at the price is the equilibrium quantity.
Finding the Equilibrium Price and Quantity
o Testing the curve and demand.
o Look at the questions
Why does the market price fall if it is above the equilibrium price
o There is a surplus of a good when the quantity supplied exceeds the quantity
demand. The surplus occur when the prices is above its equilbirum level.
Why does the market price rise if it is below the equilibrium price
o There is a shortage of a good when the quantity exceeds the quantity supplied.
Shortage occur when the price is below its equilibrium level.
Check your understanding
1. a. The quantity of the houses that are supplied rises arts the resort of the increase of the
prices. This is the increase in the supply which shifts the curve.
b. The quantity of the strawberries is supplied through the higher given price. This is the
increase of supplies
c. In the quantity of the star berries is supplied towards the wage. This is the decrees of
the supply.
d. In the quantity of the later supplies rises. This is a movement along the supply curve.
either quantity of cabins supplied at the higher price. This is the increase.
2. a. This is the increase in the supply in order for the curve to be rightward. The original
equilibrium price the quantity of the hotel rooms exceeds. The falls.
b. Demand increases so that the demand for the curves and the shifts turns.
Multiple Choice
1. d
2. d
3. c
4. b
5. d
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Module 7: Supply and Demand Changes in Equilibrium
Changes in Supply and Demand.
o We have seen that when a curve shifts the equilibrium price and quantity change.
What Happens When the Demand Curve Shifts
o When demand for a good or service increase the equilbirum price and the equilibrium
quantity of the good or service both rises.
o When demand for a good or service decreases the equilibrium price and the
equilibrium quantity of the good or service both fall.
o An increase in demand leads to a rise in both the equilibrium rice and the equilibrium
quantity. A decrease un demand leads to a fall in both the equilibrium price and the
equilibrium quantity.
What happens when the supply curve shifts
o When supply of a good or service decreases the equilibrium price of the good
service rises and the equilibrium quantity. An increase in the supply leads to a fall in
the equilibrium price and a rise in the equilibrium quantity. A decrease in supply
leads to a rise in the equilibrium price and a fall in the equilibrium quantity.
Simultaneous Shifts of Supply and Demand Curves
o Read Notes
Check your Understanding
1. a. The decrees of the price of the gasoline caused by the rightward shift of the demand of
the large cars. The suet of the shift of the price of the cards changes.
b.The technological innovation caused the rightward shift in this apply for the paper from
the recycled stock as the shift.
c. The fall in the price of the pay per view for the movies cause the shifts the result of r
the shift and the prices of the movie tickets fall and the changes of everything.
2. a. The demand increases the relativity of r the more supply increases for the then changes
of the equilibrium
b. The supply increase relativity more than the demand decrease for the equilibrium
quantity rises.
Multiple Choice
1. d
2. b
3. a
4. a
5. c