ECON 3411 Lecture Notes - Lecture 11: Economic Equilibrium, Price Ceiling, Price Floor

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19 Jan 2018

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Price of a good is determined by the interactions of the market demand and market supply for the good. A price and quantity such that there is no shortage or surplus in the market. Forces that drive market demand and market supply are balanced, and there is no pressure on prices or quantities to change. Market equilibrium ii: co(cid:374)side(cid:396) a (cid:373)a(cid:396)ket (cid:449)ith demand and supply functions, respectively, as: (cid:1843)(cid:1856) = (cid:1005)(cid:1004) (cid:1006)(cid:1842) and (cid:1843)(cid:1871) = 2+2(cid:1842, a (cid:272)o(cid:373)petiti(cid:448)e (cid:373)a(cid:396)ket e(cid:395)uili(cid:271)(cid:396)iu(cid:373) e(cid:454)ists at a p(cid:396)i(cid:272)e, (cid:1842)(cid:1857), such that (cid:1843)(cid:1856)((cid:1842)(cid:1857)) = (cid:1843)(cid:1871)((cid:1842)(cid:1857)). That is, (cid:1005)(cid:1004) (cid:1006)(cid:1842) = 2+2(cid:1842) 8 = 4(cid:1842) (cid:1842)(cid:1857) = : (cid:1843)(cid:1857) = (cid:1005)(cid:1004) (cid:1006)(cid:894)(cid:895) = (cid:1010) and (cid:1843)(cid:1857) = 2+2() = 6, (cid:1843)(cid:1857) = 6 units. Price restrictions: i(cid:374) a (cid:272)o(cid:373)petiti(cid:448)e (cid:373)a(cid:396)ket e(cid:395)uili(cid:271)(cid:396)iu(cid:373), p(cid:396)i(cid:272)e a(cid:374)d (cid:395)ua(cid:374)tit(cid:455) f(cid:396)eel(cid:455) adjust to the forces of demand and supply, so(cid:373)eti(cid:373)es the go(cid:448)e(cid:396)(cid:374)(cid:373)e(cid:374)t (cid:396)est(cid:396)i(cid:272)ts ho(cid:449) (cid:373)u(cid:272)h p(cid:396)i(cid:272)es a(cid:396)e pe(cid:396)(cid:373)itted to (cid:396)ise o(cid:396) fall.

Related Questions

(Market Equilibrium). Aggregate market supply and demand for good X are the following:

Q_d (P)=828-27P

Q_s (P)=-184+19P

2. (3 points) Calculate the equilibrium price and quantity

3. (3 points) Does the market demand function follow the law of demand at the equilibrium price? EXPLAIN

4. (3 points) Does the market supply function follow the law of supply at the equilibrium price? EXPLAIN

5. (3 points) Is there a surplus or shortage at the equilibrium price? EXPLAIN

6. (3 points) Calculate the surplus or shortage when the price is $26

upstairsatom

(Market Equilibrium). Aggregate market supply and demand for good Y are the following:

Qd (P)=10,368/P

Qs (P)=24P+576

Hint 1: Solve for a quadratic in P (i.e., You will then need to either factor the quadratic or use the quadratic formula to solve this problem x=(-b±√(b^2-4ac))/2a

Hint 2: You will get two possible equilibrium prices. You want a positive price since prices must be positive.

1. Calculate the equilibrium price and quantity.

2. Does the market demand function follow the law of demand at the equilibrium price? EXPLAIN

3. Does the market supply function follow the law of supply at the equilibrium price? EXPLAIN

4. Is there a surplus or shortage at the equilibrium price? EXPLAIN

5. Calculate the surplus or shortage when the price is $8

upstairsatom

1. Consider a market in which the efficient level of trade is 7,500 units.There would be apositive Deadweight-Loss if _________ units were traded.

A.9,250. B.4,500. C.5,125. D.More than one (perhaps all) of the above answers are correct.

2. Which of the following statements is correct for the market equilibrium in the model of supply and demand?

A. Stable-- If we are there we will stay there, unless outside forces change

B. Unique-- there is one and only one equilibrium, a property which follow from the "law of demand" and "law of supply"

C. Self-enforcing-- at higher prices There is downward pressure on price; at lower prices there is a upward pressure on price-- therefore if we are at some other price, we will be pushed toward the equilibrium price.

D. All the above.

3. using the following table.

price per video game Quantity demanded per year Quantity supplied per year

$5 30 102

$4 48 84

$3 66 66

$2 84 48

$1 102 30

Beginning with Equilibrium in the table above an increase in price of $2 would:

A. Cause a shortage of 36 B. Cause a surplus of 36 C. Cause a shortage of 72 D.Cause a surplus of 72.

ECON 3411 Lecture Notes - Lecture 11: Economic Equilibrium, Price Ceiling, Price Floor

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