NMH\s4econ\dsprev11 Demand, Supply and Price (Part 1) Quantity Price 0 Market DS P* Q* I.Demand Curve II.Supply Curve III.Equilibrium Price & Quantity.

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NMH\s4econ\dsprev11 Demand, Supply and Price (Part 1) Quantity Price 0 Market DS P* Q* I.Demand Curve II.Supply Curve III.Equilibrium Price & Quantity

NMH\s4econ\dsprev12 I.Demand Q P 0 D Demand curve shows the quantities demanded at all prices. P ($)Qty demanded Demand

NMH\s4econ\dsprev13 The Law of Demand states that when the price of a good increases, the quantity demanded for the good will decrease, vice versa and ceteris paribus. P   Qd  P   Qd  Q P 0 D Demand curve will be downward sloping.

NMH\s4econ\dsprev14 It is wrong to say that: P   D  or P   D  It should be: P   Qd  or P   Qd  DD  Movement along the same demand curve. D represents the entire demand curve. Its shifts are not caused by any change in the price of the good.

NMH\s4econ\dsprev15 Demand  Quantity demanded The entire plan of purchase: quantities demanded at all prices. It is represented by the entire demand curve. The quantity planned to buy at a particular price. It is represented by a point on the X-axis.

NMH\s4econ\dsprev16 Quantity Demanded  Quantity purchased The quantity planned to buy. The quantity has been bought actually. Quantity bought Quantity transacted

NMH\s4econ\dsprev17 IV.Market demand Q P 0 D DaDbDc horizontal summation Market demand curve is the horizontal summation of all individual demand curves.

NMH\s4econ\dsprev18 II.Supply Q P Supply curve shows the quantities supplied at all prices. P ($)Qty supplied Supply S

NMH\s4econ\dsprev19 The Law of Supply states that when the price of a good increases, the quantity supplied of the good will increase, vice versa and ceteris paribus. P   Qs  P   Qs  Supply curve will be upward sloping. Q P 0 S

NMH\s4econ\dsprev110 It is wrong to say that: P   S  or P   S  It should be: P   Qs  or P   Qs  SS Supply  Quantity supplied Quantity supplied  Quantity sold Quantity transacted

NMH\s4econ\dsprev111 IV.Market supply SfSgSh Q P 0 S horizontal summation Market supply curve is the horizontal summation of all individual supply curves.

NMH\s4econ\dsprev112 III.Equilibrium price and quantity Qty suppliedP ($)Qty demanded Q P 0 2 DS

NMH\s4econ\dsprev Q P 0 2 DS When P = $6, Qd = 3 units and Qs = 5 units. excess supply There will be an excess supply of 2 units (= 5 - 3). The price will decrease until no excess supply at all. P= QsQd Excess supply

NMH\s4econ\dsprev Q P 0 2 DS When P = $3, Qd = 6 units and Qs = 2 units. excess demand There will be an excess demand of 4 units (= 6 - 2). The price will increase until no excess demand at all. P= QsQd Excess demand

NMH\s4econ\dsprev Q P 0 2 DS When P = $5, Qd = 4 units and Qs = 4 units. Equilibrium Equilibrium will appear, where $5 and 4 units are equilibrium price and quantity respectively. P= QsQd Equilibrium

NMH\s4econ\dsprev116 Definitions: Excess supply Excess supply or surplus means that the quantity supplied is greater than the quantity demanded at a price which is above the equilibrium price. not S > D the condition Excess demand Excess demand or shortage means that the quantity demanded is greater than the quantity supplied at a price which is below the equilibrium price. not D > S the condition

NMH\s4econ\dsprev117 Definitions: Equilibrium Equilibrium appears when the quantity demanded is equal to the quantity supplied; there will be no tendency for the price to change. not D = S no internal force to change the price

NMH\s4econ\dsprev118 Demand, Supply and Price (Part 1) The End