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Class3ofEA Demand Supply2011
Class3ofEA Demand Supply2011
Relevant to take production decisions DD-SS determine price and allocate scarce resources Govt. when does not know demand can mess up. Demand for public services not known hence difficult to decide their prices
Law of demand- negative relationship between P and Q ceteris peribus True for most goods except Giffen good and snobbish good. Individual v/s market demand curve Demand function and other important factorsincome, prices of other goods, tastes & preferences, expectation, number of consumers in the market.
Each
what? Why QD increases when P falls? Increase or decrease in demand implies shift in demand or movement off the initial curve. Demand shifters implies increase or decrease in demand-off the curve movement
Change in quantity demanded implies expansion or contraction of demand at different prices i.e. movement on the curve. Income and QD positive relation means normal goods and negative relation means inferior goods. Prices of related goods (PY) and QD of a given good. Positive relationship implies substitutes and negative relationship implies complements. Tastes and change in demand. Expectations about income or prices or shortages and change in demand.
Smoking
reduction through two methods. Awareness advertisement or discussion of studies etc. affect demand curve. It changes demand. i.e.. Movement off the curve. Another way is imposing tax-it will change price and contracts demand i.e. movement on the demand curve.
Supply
schedule and curve Supply function and shifters- tax, input prices, technology, expectations, number of suppliers in the market. Change in quantity supplied and movement on the supply curve.
DD-SS equilibrium-stable Equilibrium price is market clearing price. Excess supply and excess demand. Law of SS and DD suggest that in any free market system surplus and shortages are removed through price changes. Prices always adjust to bring DD-SS in to balance. Faith in markets.
Ask whether the policy or the event affect DD or SS or both. Whether the curve shifts to the right or the left. compare initial and new equilibrium points to observe changes in P and Q. Subsidy on education by way of scholarships or loans to students. Subsidy to educational institutions and tax benefits for the donations to such places. Opposite impact-demand encouraged but supply discouragedimpact on price and quantity uncertain.