nmh\s4econ\dsprev11 demand, supply and price (part 1) quantity price 0 market ds p* q* i.demand...
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Demand, Supply and Price (Part 1) Demand, Supply and Price (Part 1)
Quantity
Price
0
Market
D S
P*
Q*I. Demand CurveII. Supply CurveIII. Equilibrium Price & Quantity
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I. Demand
Q
P
0
D6
5
4
3
3 4 5 6
Demand curve shows the quantities demanded at all prices.
P ($) Qty demanded
6 3
5 4
4 5
3 6DemandDemand
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The Law of Demand states that when the price of a good increases, the quantity demanded for the good will decrease, vice versa and ceteris paribus.
P Qd
P Qd
Q
P
0
D
Demand curve will be downward sloping.
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It is wrong to say that:
P D or P D
It should be:
P Qd or P Qd
D D
Movement along the same demand curve.
D represents the entire demand curve. Its shifts are not caused by any change in the price of the good.
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Demand Quantity demanded
The entire plan of purchase: quantities demanded at all prices.
It is represented by the entire demand curve.
The quantity planned to buy at a particular price.
It is represented by a point on the X-axis.
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Quantity Demanded Quantity purchased
The quantity planned to buy.
The quantity has been bought actually.
Quantity boughtQuantity transacted
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IV. Market demand
Q
P
0
D
Da Db Dc
6 8 10 24
Market demand curve is the horizontal horizontal summationsummation of all individual demand curves.
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II. Supply
Q
P
0
6
5
4
3
2 3 4 5
Supply curve shows the quantities supplied at all prices.
P ($) Qty supplied
6 5
5 4
4 3
3 2SupplySupply
S
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The Law of Supply states that when the price of a good increases, the quantity supplied of the good will increase, vice versa and ceteris paribus.
P Qs
P Qs
Supply curve will be upward sloping.
Q
P
0
S
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It is wrong to say that:
P S or P S
It should be:
P Qs or P Qs
S S
Supply Quantity supplied
Quantity supplied Quantity soldQuantity transacted
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IV. Market supply
Sf Sg Sh
5 9 13 27
Q
P
0
S
Market supply curve is the horizontal horizontal summationsummation of all individual supply curves.
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III. Equilibrium price and quantity
Qty suppliedP ($) Qty demanded
6 3 55 4 44 5 33 6 2
6
5
4
3
3 4 5 6 Q
P
0 2
D S
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6
5
4
3
3 4 5 6 Q
P
0 2
D S
When P = $6,
Qd = 3 units and Qs = 5 units.
There will be an excess supplyexcess supply of 2 units (= 5 - 3).
The price will decrease until no excess supply at all.
P=
QsQd
Excess supplyExcess supply
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6
5
4
3
3 4 5 6 Q
P
0 2
D S
When P = $3,
Qd = 6 units and Qs = 2 units.
There will be an excess demandexcess demand of 4 units (= 6 - 2).
The price will increase until no excess demand at all.
P=
Qs Qd
Excess demandExcess demand
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6
5
4
3
3 4 5 6 Q
P
0 2
D S
When P = $5,
Qd = 4 units and Qs = 4 units.
EquilibriumEquilibrium will appear, where $5 and 4 units are equilibrium price and quantity respectively.
P=
Qs Qd
EquilibriumEquilibrium
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Definitions:
Excess supplyExcess supply or surplus means that the quantity supplied is greater than the quantity demanded at a price which is above the equilibrium price.
not S > D
the condition
Excess demandExcess demand or shortage means that the quantity demanded is greater than the quantity supplied at a price which is below the equilibrium price.
not D > S
the condition
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Definitions:
Equilibrium Equilibrium appears when the quantity demanded is equal to the quantity supplied; there will be no tendency for the price to change.
not D = S
no internal force to change the price
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Demand, Supply and Price Demand, Supply and Price
(Part 1) (Part 1)
The EndThe End