ANNOUNCEMENTS

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ANNOUNCEMENTS
Homework Assignment 1 on Internet - Access
through homepage URL http//www.albany.edu/twk5
8/eco110.html
Textbooks Hardcover sold out, paperback
micro text on shelves in bookstore. See News
on Homepage.
Assistants will be available for answering
questions about material in the textbook.
Information will be available on the Homepage in
a few days.
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SHIFT IN DEMAND
3
SHIFT IN SUPPLY
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MARKET EQUILIBRIUM
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A CHANGE IN EQUILIBRIUM
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PRICES AND MARKETS ALLOCATE RESOURCES
When quantity demanded exceeds quantity
supplied at the current price, this indicates
that consumers would like more of the good
produced than producers are supplying. In this
situation market forces will push price up, so
that producers will be encouraged to devote more
resources for producing a larger quantity. At
the same time the higher price will convince some
consumers not to buy, allocating their income to
some other use.
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PRICES AND MARKETS ALLOCATE RESOURCES
When quantity supplied exceeds quantity
demanded at the current price, this indicates
that consumers dont want as much of the good
produced as producers are supplying. In this
situation market forces will force price down,
so that producers will devote fewer resources and
produce a smaller quantity of this good. At the
same time the lower price will encourage some
consumers buy more, allocating their income from
some other use.
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PRICES AND MARKETS ALLOCATE RESOURCES
Two functions performed by markets and prices
(1) Markets are a mechanism that provides
signals (through prices) to producers about
how to adjust production and the
allocation of resources to production.
(2) Price rations (allocates) production among
consumers. Only those willing and able can
buy. Prices are also a signal to consumers
about the cost of resources to suppliers in
production.
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DEMAND EQUATIONS
Demand equation of a single consumer
qD1 15 - 2p pA - 0.5pB Y1
If there are 20 consumers with this demand
equation, then their combined demand equation is
QD1 20qD1 300 - 40p 20pA - 10pB 20Y1
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DEMAND EQUATIONS
QD1300 - 40p 20pA - 10pB 20Y1
For these consumers, this is a normal good,
it is a substitute for good A,
and it is a complement for good B.
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QD1300 - 40p 20pA - 10pB 20Y1
If pA2, pB1, Y1100, then QD12330 - 40p.
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ADDING DEMANDS
The first group of consumers has demand equation
QD1300 - 40p 20pA - 10pB 20Y1
Suppose a second group of consumers has demand
equation QD2100 - 20p
5pA - Y2
Then the total demand of the two groups is
QD400 - 60p 25pA - 10pB 20Y1 - Y2
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ADDING DEMAND CURVES
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ADDING SUPPLY CURVES
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CALCULATING EQUILIBRIUM
Suppose the demand equation is QD400 -
60p 25pA - 10pB 20Y1 - Y2
When pA2, pB1, Y150, and Y240,
QD1400-60p
Now suppose that the supply equation is
QS7010p.
In equilibrium
QDQS
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CALCULATING EQUILIBRIUM
Then 1400-60pE QD QEQS7010pE,
or 60pE10pE1400-70,
or 70pE1330,
or pE19.
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CALCULATING EQUILIBRIUM
At pE19, QD1400-60pE 1400 - 60(19)1400-114026
0
and QS7010pE7010(19)70190260.
Since QD QS260 when p19, the equilibrium price
is pE19 and the equilibrium quantity is QE260.