Econ 201 1st Edition Lecture 12Outline of Last Lecture 1.supply and demand in market2.supply and demand basic conceptOutline of Current Lecture 1. Equilibrium 2. Analysis shifCurrent LectureEquilibriumEquilibrium is attained when the P, Q pair prevailing is on both the Supply and Demand curves. This is the market clearing price and quantity: P* Q* i.e. at P*, Qd = Q*= QsThe Law of Supply and Demand: Markets naturally tend toward equilibrium. Spontaneous movement toward equilibrium P* - Q* combination.Shortage:Qd > QsP1 P2 price rises Surplus: Qd < Qs ==> price fallsAnalysis of Shifts: Comparative Statics ProcedureReview “shifer” variables and consider impacts on equilibrium: P*, Q* . Three steps to Analysis:These 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.1. Determine which curve to shif2. Determine the direction of shif3. Examine impact on equilibrium point (the intersection).Example. Suppose the price of gasoline falls. What happens in the market for auto tires?Demand shifs right, supply is not changed. Q* rises and P*
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