Microeconomics

Leeds, von Allmen and Schiming

Chapter 4, Demand and Supply

1. Introduction

2. The Italian Market in Philly

3. Central Planning versus the market

4. Definition of a market

5. Geography

6. product characteristics

7. Time

8. Demand

   1. Reservation Price - Willingness and ability to pay - marginal benefit

   2. Individual and market demand - How do we add up the individuals to get the market?

9. The Law of Demand

   1. Inverse relationship between price and quantity

      1. Substitution Effect

      2. Income Effect

      3. Positive vertical intercept, negative slope

   2. Movement along the demand curve - declining marginal benefit

10. Changes in demand

    1. Consumer incomes

       1. Normal goods

       2. Inferior goods

    2. Prices of substitutes and complements

    3. Tastes and preferences

    4. Demographics

    5. Expectations

11. Supply

    1. Reservation Price - Willingness and ability to accept an offer

    2. Individual and market supply

12. The Law of Supply

    1. Direct relationship between price and quantity

    2. INtercept can be + or -, positive slope

    3. Movement along the supply curve - increasing opportunity cost

13. Changes in supply

    1. Price of inputs

    2. Technology

    3. Natural events (hurricanes!)

    4. Number of firms

    5. Expectations

14. Equilibrium

    1. Intersection of the supply curve and the demand curve

    2. Quantity supplied equals quantity demanded

    3. Consumer's reservation price equals seller's reservation price

    4. Total economic surplus

       1. Buyer's / consumer surplus

       2. Seller's / producer surplus

15. Departures from equilibrium

    1. Shortage - excess demand

    2. Surplus - excess supply

16. Changes in demand and supply

    1. Increase/decrease in demand - impact on P and Q

    2. Increase/decrease in supply - impact on P and Q

    3. Is the impact on P and Q always unambiguous?