Name ______________________________________________ LECTURE NOTES

Principles of Microeconomics – Dr. Sauer

Market Analysis (ch 4) – Part II I. Some important terminology A. change in quantity demanded vs change in demand A change in quantity demanded is caused by a change in the ________________________. It is depicted by a _____________________ a given demand curve. A _____________________________ can be caused by a change in ~ number or type of buyers ~ income (normal goods vs inferior goods) ~ tastes/preferences ~ price of related goods (substitutes vs complements) ~ expectations about the future It is depicted by a ____________ in the demand curve.

_________________________________________________________________________________ B. change in quantity supplied vs change in supply A change in quantity supplied is caused by a change in the ________________________. It is depicted by a _____________________ a given supply curve. A ______________________ can be caused by a change in ~ number of sellers ~ production technology ~ input prices ~ expectations about the future It is depicted by a ___________ in the supply curve.

II. How to analyze a change in equilibrium 1. Decide if the “event” shifts supply, demand, both, or neither. 2. Decide the direction of the shift. 3. Graph the change to see what happens to equilibrium. - one curve shifting = one graph - two curves shifting = two graphs

For each of the following events, identify whether demand or supply is affected and illustrate on the graph. Explain. When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country. Market for Orange Juice

When the weather turns warm in North America every summer, the price of hotel rooms in Caribbean resorts plummets. Market for Hotel Rooms in Caribbean

When many couples have more than 2 children, the price of minivans rises. Market for Minivans

When engineers develop faster computer chips, the price of computers falls. Market for Computers

When a war breaks out in the Middle East, the price of oil rises. In China, the middle class is growing and can afford to buy cars. What happens in the market for gasoline?

III. Equilibrium Analysis using Algebra Market research has revealed the following information about the market for chocolate bars: The demand can be represented by the equation QD = 1,600 – 300P. The supply can be represented by the equation QS = 1,400 + 700P. a) Solve for equilibrium price and quantity. b) Illustrate on a graph.

c) Now suppose that scientists announce that chocolate can cure cancer. The demand increases to QD = 3,000 – 300P. Solve for the new equilibrium price and quantity. Then show your results on your original graph.

_____________________________________________________________________________ IV. Alfred Marshall

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