DEMAND SUPPLY MARKET QEUILIBRIUM AND WELFARE ANALYSIS CHAPTER 2 AP MACRO

DEMAND→ thce conpcpet is simple people ted to purchase fewer items whent he price is high tan they do when the price is low.

LAW OF DEMAND→ holding all else equal, when the rpie of a good rises, consumers decrease their quantity demanded for that good, INVERSE RELATIONSHIP

this is simplified obviously

INCOME AND SUBSTITUTION EFFECTS→ only relative prices matte

prices of a good ar ecalled simpy money or absolute nominal prices/

But when you think about your money in terms of a priduct and how much of your money is absorbed by that price then you are talking about relative prices.

MONEY VS RELATIVE PRICES→

since a product is more expensive we should expect oyu to consume more of the otheer product which was normal before. This is known as the substitution effect→ as consumers shift their purchasing preferences towards a relatively cheaper alternative when the price of a product rises.

Whne the price of a cheaper product increases resulting in the change in the price relative to the other then the fact that yesterday you could purchase 10 and now only 5 is called the income effect.

THE DEMAND CURVE

DEMAND SCHEDUKLES IS A GRAPHICAL REPRESENTATION OF THE DEMAND CURVE

QUANTITY DEMANDED BERSUS DEMAND

the law of demand redicts a downward or negative sliping demand curve

the demand is held constant if the proce of the good changed remains constant too

DETERMINANTS OF DEMAND→ they influence both willingness and ability of the consumer to purchase units of the good or service

they are consumer income, price of s subtitute good such as iced tea,

price of a complementary good such as posicle

consumer tastes and preferences for lemonade

consumer expectations about future prices of lemonade

Number of buyers i the market for kemonade

CONSUMER INCMDE→ DEMAND REPRESENTS THE CONSUMER WILLIGNESS AND ABILITY TO PAY FOR A GOO INCOME IS A MAJOR FACTOR IN THAT ABILITY TO PAY COMPONENT →when income incrases, demand for the good increaes

NORMAL GOODS→ increase icome results in a grpahical rightward shift in the entire demandd curve

INFERIOR GOODS→Fewer in numbers , these goods experience a decrease in demand as consumer incomes rise, causing a leftward shift in the demand curve.

PRICE OF SUBSTITUTE GOODS→ they are subtitutes if the consumer can use either one to satisfy the same essential function, therefore experienceing the same dgree of happiness.

PRICE OF COMPLEMENTARY GOODS→ TWO GOODS ARE COMPLEMENTS IF THE CONSUER RECEIVE SMORE UTILITY FROM CONSUMING THEM TOGETHER thans she would receiv consuming each of them separatelt. IF ONE falls the other surges because they have a better endgoal satisfaction.

TASTES AND PREFERENCES→ change with the seasons, fashion trends, adeetising.

FUTURE EXPECTATIONS→ CAN CAUSE DEMAND TO SHIFT TODAY, it makes consumers buy before and therefore change the future. Manipulation.

NUMBER OF BUYERS→ An increse of the number of buyers holding other factors constant increases a demand for a good.

SUPPLY→if something happens that would increaseyour chances of earning proft you increase your supply of the product. and if it hurst the profits you decrease the supply rightwaayay too.

LAW OF SUPPLY→holding all else equal when the price of a good rises, suppliers increase their quantity of supplied for that good.

INCREASING MARGINAL COSTS→ The more you do soething the more difficult it becomes to do the next unit of that activity

a suppliers increase the quanity of a supplied of a good, they face rising marginal costs.

Result they only increase the quantity supplied of that good if the price received is high enough to at least cover the higher marginal cost

THE SUPPLY CURVE→ is therefore upward sloping as it reflects the direct relationship between price and quantity supplied; higher prices incentivize suppliers to produce more, compensating for the increased marginal costs associated with additional production.

QUANTITY SUPPLIED VERSUS SUPPLY→increase in the quanitty suppled form 100 cups to 120c cups

DETERMINANTS OF SUPPLY→ lemonade producers are wilig and able to supply more if something primises to incerease their pofit

these determinants are the cost of an input, technology and productivity used to produce lemonade, taxes or subsidies n lemonade, producer expectations of prices, the price of other goods tat coul dbe produced. the umber of lemonade stans in the industry.

COST OF INPUTS→  A ingredient is cheaper then allof the people have a better profit then the graph sihifts rights for an upward slope for supplu but at the same time are able to accept lower prices for the good.

TECHNOLOGY OR PRODUCTIVITY→ ecreases the marginal cost of producing a good allowing for more units more supplu t then lower profits

TAXES AND SUBSIDIES→ additional cost of production and would therefore decrease the supply curve; however, subsidies can have the opposite effect by lowering production costs, incentivizing producers to increase supply, and shifting the supply curve to the right. Understanding these factors is crucial in analyzing market equilibrium and overall welfare impacts.

PRICE EPECTATIONS→ willingess today might be affected by an expectation tomorrows price

This means that if producers anticipate higher prices in the future, they may hold back some of their current supply to maximize profits later, leading to a leftward shift in the current supply curve.

PRICE OF OTHER OUTPUTS→ smae resources to produce different goods.  As a result, if the price of a related good increases, producers may allocate more resources toward that good, causing a decrease in the supply of the original product and a leftward shift in its supply curve. This interdependence among products is essential for understanding how market forces play out in equilibrium analysis.

NUMBER OF SUPPLIERS→when more suppliers enter a market, we expect the supply of the cruve to shift to the rigt, indicating an increase in overall market supply. This shift occurs because the new entrants increase competition among suppliers, often leading to lower prices and more availability of the product for consumers.

MARKET EQUILIBRIUM→Demanders and suppliers ar eboth otivate by prices

EQUILIBRIUUM→ when the quantity suppleid equals the quantity demanded at a given price.

COMBINING DEMAND AND SUPPLY SCHEDULES its when the amount demande is euqal to the amount supplied most profit.

SHORTAGE→EXISST At a market price when the quanitty demanded eceeds the quantity supplied.

Also a shortag is known as excess demand

SURPLUS→ w2hen the quantity spplied exceedds the quantity demanded

surplus also known as excess supply.

CHANGES IN DEMAND→ changing market forces disrupt equilibrium either by shifting demand, shifting supply, or shiftning both demand and supply

INCREASE IN DEAMND→ about once a winter a freak bliar hits southern states like Geoirgia and the Carolinas.

This sudden increase in demand for essential goods, such as food and heating supplies, can lead to higher prices as sellers respond to the urgent needs of consumers.

DECREASE IN DEMAND→ a decline in consumer preferences or a fall in income levels can lead to a drop in demand for certain goods. This often results in excess supply, driving prices down as sellers attempt to clear their inventory and attract buyers.

when demand increaes equlibrium proice and quantity both increase

when demand decreases 3equlibrium rice and quantity both decrease

CHANGES IN SUPPLY→v ariations in production costs, technological advancements, or shifts in the number of suppliers can significantly impact the supply of goods. When supply increases, equilibrium prices typically fall while quantities rise, leading to a greater availability of products in the market. Conversely, a decrease in supply results in higher equilibrium prices and lower quantities, creating a tighter market environment.

SIMULTANEOUS CHANGES IN DEMAND AND SUPPLY

When both demand and supply increase simultaneously, the effect on equilibrium price may be ambiguous, but equilibrium quantity will certainly rise. Conversely, if both demand and supply decrease, equilibrium price may also fluctuate, while equilibrium quantity will decline. Understanding these dynamics is crucial for analyzing market behavior and welfare outcomes. In cases where demand increases while supply decreases, the equilibrium price will rise, and the impact on equilibrium quantity will depend on the magnitude of the shifts in demand and supply.