Lecture 4 - Price output determination

What is demand in economics?

Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a specific period.

What does the Law of Demand state?

The Law of Demand states that as the price of a good or service increases, the quantity demanded decreases, and vice versa, all else being equal.

What are the determinants of demand?

Factors that shift the demand curve include the price of the good/service, consumers' income, tastes and preferences, expectations, prices of related goods, and the number of buyers.

What is the Law of Supply?

The Law of Supply states that as the price of a good or service increases, the quantity supplied increases, and vice versa, all else being equal.

What are the determinants of supply?

Factors that shift the supply curve include the price of the good/service, cost of inputs, technology, expectations, government policies, and the number of sellers.

What is market equilibrium?

Market equilibrium is the point where the quantity demanded by consumers equals the quantity supplied by producers, and there is no tendency for the price to change.

What is the equilibrium price?

The equilibrium price (P_e) is the price at which quantity demanded equals quantity supplied.

What happens if there is a surplus in the market?

If there is a surplus (excess supply), producers will lower prices to clear unsold goods, leading to an increase in quantity demanded and a decrease in quantity supplied, moving back toward equilibrium.

What happens if there is a shortage in the market?

If there is a shortage (excess demand), consumers will bid up prices, causing a decrease in quantity demanded and an increase in quantity supplied, moving back toward equilibrium.

How is the equilibrium price and quantity graphically determined?

The equilibrium price and quantity are determined by the intersection of the demand curve and the supply curve.