Micro review:The simple market modeljuliohuato@gmail.com

Micro review A simple market model

Demand Supply Equilibrium Shifts in demand or supply Algebra and graphs

DemandWhat makes buyers buy (consumers consume) more of a good?

A lower price of the good Higher income or wealth Enhanced taste for the good Suitable changes in prices of related goods Expectations Etc.

Demand graph

Demand equation

where 40 is the (only in this case, because the axes of this graphare flipped) horizontal intercept and -2 is the slope.

NOTE: The intercept tells you the quantity demanded when the good is free. That is, when p=0, Qd = 40. In most cases, this is not of much interest. The slope (-2) tells you the change in the quantity demanded when the price changes in one unit ($1/unit). That is, when Dp = 1, DQd = -2.

SupplyWhat makes sellers sell (producers produce) more of a good?

A higher price of the good Lower input prices (e.g. wages) Improved technology Expectations Etc.

Supply graph

Supply equation

where 10 is the (again, only in this case) horizontal intercept and 4 is the slope.

What do the intercept and slope tell you?

Equilibrium graph

Solving the system

Solving the system