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UI ECON 1100 - Supply and Demand: Simultaneous Change

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ECON 1100 1st Edition Lecture 6Outline of Previous Lecture- Market Equilibrium•Supply and DemandOutline of Current Lecture- Supply and Demand Continued•Change in both demand and supply simultaneously•The mathCurrent Lecture- Change in both demand and supply simultaneously• Suppose an increase in both demand and supply- Cannot with certainty determine equilibrium price by just this- Equilibrium quantity (Q**) will increase• Suppose decrease in both demand and supply- Cannot with certainty determine equilibrium price- Demand and supple both shift to the left- Equilibrium quantity will decrease• Suppose increase in demand and decrease in supply- Equilibrium price will rise- Cannot with certainty determine change in equilibrium quantity• Suppose decrease in demand and increase in supply- Cannot with certainty determine change in equilibrium price- Equilibrium price will fall- The math•Solve for equilibrium price (P*) and equilibrium quantity (Q*) with a demand and supply equation- Q= 500-5P <— Demand Equation- Q= 2P-60 <— Supply Equation - To solve for equilibrium price, set quantity demand equation equal to quantity supply equation•500-5P = 2P-60 560 = 7P P* = $80- To solve for equilibrium quantity, plug P* into either the quantity demand equation or quantity supply equation•QD= 500-5(80) = 100•QS= 2(80)-60 = 100- Suppose QD’= 430-5P and QS= 2P-60These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.•Set price (P) equal to 0, making it free and see what happens to each- Demand shifts left• QD’=QS- 430-5P = 2P-60 490=7P P**= $70 Q**= 80- Suppose Q= 500-5P and QS’= 2P-25• Set price (P) equal to 0, making it free and see what happens to each- Supply shifts right• QD’=QS- 500-5P = 2P-25 525=7P P**= $75 Q**= 125- Suppose QD’= 430-5P (left) and QS’= 2P-25 (right)•Remember that price falls*• QD’ = QS’ 430-5P = 2P-25 455 = 7P P**= $65• Plug 65 into supply equation - Q**= 105•Quantity


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