And Market Equilibrium Demand and Supply And Market Equilibrium

demand Relationship between the price and the quantity the buyer is willing to purchase, holding all else constant P Q P 10 1 7 2 4 3 Q=f(P, all other things) Q Law of demand and vertical and horizontal demand curves

Shift parameters of demand Income (normal vs inferior) Expectation about future prices Substitutes vs complements Preferences and advertising Market size

Market demand curve Horizontal summation Q P 3 1 2 Q P 5 1 3 2 Q P 8 1 II Q P 3 1 2 Q P 5 1 3 2 Q P 8 1 5 2 3

Deriving demand and other factors model prediction data Data gathering issues (surveys) Models and simplifications Regression analysis and results Generalized demand function and inverse demand function

supply Substitutes in Production Relationship between the price of the product and quantity offered for sale Quantity supplied is a function of several variables Price of the good Producer expectation concerning future prices Number of firms Cost of production (prices of inputs, available technology) Prices of goods related in production Substitutes in Production - Goods for which an increase in Px relative to Py causes producers to increase production of the now higher price good and decrease production of the lower priced good ex. Wheat and corn Complements in Production - Goods for which an increase in Px relative to Py causes producers to increase production of both goods ex. gold and silver

Generalized supply function Law of supply Fixed supply

Market equilibrium Quantity supplied = quantity demanded Demand: Q = a – b * P Supply: Q = c + d * P Equilibrium quantity: (ad+bc)/(d+b) Equilibrium price: (a-c)/(d+b) Who pays sales tax?