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Class Note - Principles of Economic

This class note covers the principles of supply and demand, explaining how prices and quantities of goods are determined in a market. It details the laws of demand and supply, the concept of equilibrium price, and factors that can shift supply and demand curves. Additionally, it discusses government price controls and their potential effects on market outcomes.

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29 views1 page

Class Note - Principles of Economic

This class note covers the principles of supply and demand, explaining how prices and quantities of goods are determined in a market. It details the laws of demand and supply, the concept of equilibrium price, and factors that can shift supply and demand curves. Additionally, it discusses government price controls and their potential effects on market outcomes.

Uploaded by

cadehorn6
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as TXT, PDF, TXT or read online on Scribd
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Class Note – Principles of Economics

Date: February 8, 2025


Topic: Supply and Demand

Introduction to Supply and Demand:

Supply and Demand are fundamental concepts in economics that describe how prices
and quantities of goods are determined in a market.
The law of supply and demand explains the relationship between the availability of
a good or service and the desire for it, influencing the price.
Law of Demand:

As the price of a good or service increases, the quantity demanded decreases, and
vice versa.
This negative relationship is due to the substitution effect (when the price rises,
consumers may switch to alternatives) and the income effect (higher prices reduce
purchasing power).
Law of Supply:

As the price of a good or service increases, the quantity supplied increases, and
vice versa.
This positive relationship is because higher prices incentivize producers to offer
more of the good or service to maximize profits.
Equilibrium Price:

The equilibrium price is the price at which the quantity demanded equals the
quantity supplied.
At this point, there is neither a shortage nor a surplus of the good, and the
market is in balance.
Market forces (buyers and sellers adjusting behavior) push the price toward
equilibrium.
Shifts in Supply and Demand Curves:

Demand Shifts: Factors like income, tastes, and the price of related goods
(substitutes and complements) can shift the demand curve. For example, an increase
in consumer income typically shifts the demand curve to the right (higher demand at
all prices).
Supply Shifts: Factors like input costs, technology, and number of sellers can
shift the supply curve. For example, an improvement in technology that reduces
production costs can shift the supply curve to the right (more supply at all
prices).
Price Controls:

Price Ceiling: A maximum price set by the government, often below the equilibrium
price, to make goods affordable (e.g., rent control). It can lead to shortages.
Price Floor: A minimum price set by the government, often above the equilibrium
price, to ensure producers receive a fair price (e.g., minimum wage). It can lead
to surpluses.
Key Takeaways:

Supply and demand are essential concepts for understanding how markets work.
Equilibrium price is the point where supply and demand are balanced.
Shifts in demand or supply can lead to changes in market prices and quantities.
Government interventions, like price controls, can have significant impacts on
market outcomes.
Next Class: Explore elasticity of demand and supply and its real-world
implications.

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