ECON 205 1st Edition Lecture 2Outline of Last Lecture II. The Market is made of buyers and sellersIII. Supply + Demand cause changes in price and quantityOutline of Current Lecture II. Determinants of Market SupplyIII. Equilibrium in the MarketIV. Basic Government Policies and their effects on Supply and DemandCurrent LectureMarket Supply- Market supply is the sum of quantities supplied by all sellers at each price- Non-price determinants of supply…o Increase in supply shifts the Supply curve to the righto Decrease in supply shifts the supply curve to the left- Factors that create shifts in the supply curve…o Input prices Decrease in input prices (wages or price of raw materials) shift the supply curve to the righto Technology Determines amount of inputs needed to produce one unit of output Cost-saving technological improvement will create a fall in input priceso Expectations May affect current supply i.e. if producers expect price to rise, they should decrease supply now, save, and sell goods later when they can make more money off of them mostly affects goods that are storableo Number of sellers Increase in the number of sellers shifts the market supply curve to the rightEquilibrium- Equilibrium occurs when supply meets demand- Price of goods adjusts to equate quantity supplied and quantity demanded- Surpluses and shortages should be temporary and will always go back to the market equilibrium- To see the effect of an event on equilibriumo See if the event shifts either of the curveso Which way do the curves, and then the equilibrium, shift?- Shortage is excess demand- Surplus is excess supplySupply, Demand, and Government Policies- Price controls are created by the government and affect the market’s ability to reach a natural equilibriumo Price ceiling- legal maximum on priceo Price Floor- legal minimum on price i.e. minimum wage- A non-binding price ceiling doesn’t prevent the market from reaching the equilibrium it would’ve reached in a free marketo Essentially has no effect on the market- Binding constraint- causes a shortage (if a price ceiling) or a surplus (if a price floor) in the market- Price controls are signals that guide the allocation of resourcesThe balance of supply and demand create a coordinating
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