1. And Market Equilibrium
Demand and Supply
And
Market Equilibrium

2. 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

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

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

5. 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

6. 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

7. Generalized supply function
Law of supply
Fixed supply

8. 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?