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Theory
Dr.Ch.Yekti.P.SE.,MSi
Introduction
and Review
1. What is microeconomics & how are
economic models constructed?
2. Buyers, Sellers, & Markets
What is a market?
The interaction of buyers & sellers of a
good or service
Households &
Resource Owners
Firms
The Market:
Supply and
Demand
$ 0.25
D
6
Quantity of apples
(in thousands of bushels)
Consumer income
Prices of substitutes and complements
Tastes
Consumer expectations
D2
D1
Quantity of apples
(in thousands of bushels)
$ 0.25
$ 0.20
D
6
Quantity of apples
(in thousands of bushels)
S
The supply of apples is
the curve S.
$ 0.22
Quantity of apples
(in thousands of bushels)
S2
S1
If rainfall is low, the
supply of apples will be
reduced. At each price,
there will be fewer
apples provided.
Quantity of apples
(in thousands of bushels)
$ 0.22
$ 0.20
Quantity of apples
(in thousands of bushels)
What is equilibrium?
It is a state of balance, where there is no
tendency for things to change.
QD
QS
condition
0.25
excess
supply
0.22
QD = QS
excess
demand
0.20
price
pressure
S
Here the equilibrium
price is 22 cents & the
equilibrium quantity is
7 thousand bushels.
$ 0.22
D
7
Quantity of apples
(in thousands of bushels)
price
P2
P1
D2
D1
Q1 Q2
quantity
S2
price
P2
P1
S1
Q2
Q1
quantity
price
S2
S1
P2 = P1
D1
D2
Q2
Q1
quantity