Name ______________________________________________ LECTURE NOTES

Principles of Microeconomics Dr. Sauer

Market Analysis (ch 4) Part I I. Introduction to the Market How does an economy face the task of allocating scarce resource that have alternative uses? A ________________________ is coordinated by prices. - Each economic actor (consumers, producers, landlords, workers, retailers, ) makes transactions with others on __________________________ terms. [ you might not LIKE the terms, but the transaction itself is voluntary ] - ____________________ convey the terms. Prices convey ____________________ and play a crucial role in determining how resources get used. A ____________________ is a group of buyers and sellers of a particular good or service. Assume a ______________________ market - many buyers and many sellers - no single buyer or seller has influence over the market price II. Demand and Supply A. Demand Individual Demand & Market Demand Price Per Pizza $20 $10 $5 $2 $1 Graphing our Classs Demand Curve for Pizza Your Personal Quantity Demanded Your Rows Quantity Demanded Our Classs Quantity Demanded

The Law of _______________________ says that there is ______________________________ relationship between price and quantity demanded Assume: other things kept constant income, etc - as price rises, the quantity demanded __________ - as price falls, the quantity demanded __________

This is why (in general) the demand curve slopes downward. Demand represents consumers ______________________________________ for a good or service.

B. Supply The Law of ________________ says that there is a ___________________________ relationship between price and quantity supplied Assume: other things kept constant like the price of raw material inputs, etc - as price rises, the quantity supplied ___________ - as price falls, the quantity supplied ___________ This is why (in general) the supply curve slopes upward. Supply represents producers _____________________________.

III. Market Equilibrium _____________________________is a state where there is no tendency for the price to change. equilibrium price is the price that __________________ Qs and Qd equilibrium quantity is _________________________ at that price

The Law of _________________________________ says that the price will adjust to bring the quantity supplied and quantity demanded into equality.

If the price were ________ than equilibrium: P1 Qs ___ Qd ___________ price will _________

If the price were ______ than equilibrium: P2 Qs ___ Qd ____________ price will __________

Surpluses put _________________ on price.

Shortages put ___________________ on price.

At P* Qd ___ Qs ____ shortage ____surplus price is ________ equilibrium price

IV. Market Equilibrium Experiment Country X Our class equilibrium price was: Our class equilibrium quantity was: Country Y Combined

V. Finding Equilibrium Using Algebra Suppose that the equations for supply and demand for blue jeans are given by the following: P = 50 2Qd P = 20 + 4Qs a) Solve for equilibrium price and quantity. b) Illustrate graphically. c) What happens if P = 45? d) What happens if P = 25?