ECON-101 Lecture Notes - Lecture 4: Peanut Butter, Demand Curve, Economic Equilibrium

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31 Mar 2016

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Explain how diferent determinants of demand afect market demand, and market demand curve. Explain how diferent determinants of supply afect market supply, and the market supply curve: use the demand- and supply model to determine the equilibrium price of a product and the equilibrium quanity. Apply the demand- and supply analysis to determine how a change in demand and/ or supply causes o changes in the equilibrium price and equilibrium quanity. Demand represents wants backed up by dollars and willingness to spend them. A market is a collecion of buyers and sellers. Money markets, for example, involve buyers and sellers around the world. Demand is the enire schedule or curve. Demands refers to the whole demand schedule or demand curve, not just a point on the curve. It represents all of the price-quanity combinaions that are acceptable to consumers. Quanity demanded is a point on the demand curve.

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A. Think about a product that you have purchased recently (e.g. soda, diapers, takeout meals, milk, shoes, manicure/pedicure, video game, etc.). Explain how the law of demand affected your purchase. Give specific examples of how the determinants of demand and supply affect this product (T-I-P-E-N and P-R-E-S-T). What happens to the demand curve and the supply curve when any of these determinants change? Give examples of scenarios that would cause a change in demand versus a movement along the same demand curve and supply curve for this product. Discuss the new equilibrium price and quantity that result from these changes. Can you demonstrate some of these changes graphically?

B. For your selected product, if the government places a mandated price ABOVE the equilibrium price, how would this affect the market equilibrium?

C. Would you rather have the forces of demand and supply determine the price of gasoline, or would you prefer a government-mandated price ceiling? What problems would a price ceiling on gasoline bring in this market?

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity rise, fall, or remain unchanged, or the answers indeterminate because they depend on the magnitudes of the shifts? Use supply and demand to verify the answers.

A. Supply decreases and demand is constant.

B. Demand decreases and supply is constant.

C. Supply increases and demand is constant.

D. Demand increases and supply increases.

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QUESTION 01: Explain the concepts of Demand, supply and market equilibrium. Give real life examples to explain the shift in demand and supply and also explain the impact of a shift in demand or supply or both on the equilibrium price and quantity. (use appropriate diagrams)

QUESTION 02: Discuss the concept of Price Elasticity of Demand. Explain using suitable examples the various determinants of Price Elasticity of Demand.

ECON-101 Lecture Notes - Lecture 4: Peanut Butter, Demand Curve, Economic Equilibrium

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