Lecture 2 - demand,supply and market equilibrium

Question 1

What are economic markets?

Answer 1

Markets bring together buyers and sellers together buy goods at a place at a certain time at a certain price.

Question 2

What is demand?

Answer 2

Demand is the amount consumers are willing to demand at a given time at a given price.

Question 3

What factors shift demand?

Answer 3

Tastes and preferences, number of buyers, consumers income, price of related good and consumer expectations.

Question 4

What is the difference in change in demand and change in quantity demanded?

Answer 4

Change in demand is the shift in the demand curve due to
determinants of demand.
Change in quantity demanded is movement along the
demand curve due to change in price and quantity demanded.

Question 5

What is supply?

Answer 5

The amount suppliers are willing to supply at a given time at a given price.

Question 6

What are the factors that shift supply?

Answer 6

Resource costs, technology, taxes and subsidies, price of related goods, producer expectations and number of sellers.

Question 7

What is the equilibrium? (ep and eq)

Answer 7

The equilibrium is where price and quantity meet each other.

Question 8

What are price floors and price ceilings?

Answer 8

(floor)
Prices set above the equilibrium:
 Quantity supplied exceeds quantity demanded.
 This leads to surplus in the market.
 An example is price floors (for farmers).
 They tend to benefit the producer.
 They distort prices for buyers and continues
allocating resources for higher profits

(ceiling)
Prices set below the equilibrium:
 Quantity demanded exceeds quantity supplied.
 This leads to deficit in the market.
 An example is price ceilings (for basic necessities).
 They tend to benefit the consumer.
 They can lead to rationing problems and black
markets.