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Understanding Demand and Supply Dynamics in Market Equilibrium

This review delves into the essentials of demand and supply, exploring what drives the demand for a product and how supply responds. It analyzes the slopes of demand and supply curves, emphasizing their relationship with price and quantity. Key factors influencing shifts in both demand (such as prices of related goods, income, preferences, expectations) and supply (like productivity and costs) are highlighted. Additionally, the concepts of market equilibrium, shortages, surpluses, price rigidities, price floors, and ceilings are discussed with real-world examples, including the implications of changes in burger prices.

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Understanding Demand and Supply Dynamics in Market Equilibrium

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  1. Demand and Supply Review (Chp. 4) What is the demand for a product? What is the supply of a product? What are the slopes of each? What is the relationship between the price and the quantity demanded and supplied? What is the difference between a change in the quantity demanded and a change in demand?

  2. Demand and Supply Review (Chp. 4) Can you recall some factors that shift demand? • Prices of related goods • Income • Preferences • Expectations How do you explain/interpret the shift?

  3. Demand and Supply Review (Chp. 4) Can you recall some factors shifting supply? • The price of related goods • Productivity • Cost of inputs

  4. Demand and Supply Review (Chp. 4) What is meant by equilibrium? What is meant by a shortage vs surplus in the market? Can you describe how the market transitions to equilibrium when there is a surplus?

  5. Demand and Supply Review (Chp. 4) What are price rigidities? What is a price floor vs price ceiling? Does a price ceiling create a shortage or a surplus in the market?

  6. Examples • In the market for stocks • Analyze what happens if people expect them to have a higher price next year? State which side of the market is impacted, and how the economy transitions to the new equilibrium. 2)You operate a burger house producing beef and chicken burgers. The selling price of chicken burgers has increased. Analyze the impact on the beef market. Clearly state your assumptions.

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