Groupon Hot or Not

1 Demand and Supply Curves

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14.01 Principles of Microeconomics, Fall 2007

Chia-Hui Chen

September 7, 2007

Lecture 2

The Basics of Supply and Demand

MARKET

⎧ ⎫ ⎪ BUYERS =⇒ DEMAND ⎪ ⎪ ⎪ ⎨ ⎬ ⎪ ⎪ ⎩ SELLERS =⇒ SUPPLY ⎪ ⎪ ⎭

EQUILIBRIUM

Outline

1. Chap 2: Demand and Supply Curves 2. Chap 2: Equilibrium in the Market 3. Chap 2: Government Interventions

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Demand and Supply Curves

Quantity Demanded and Quantity Supplied

QD (Quantity demanded). Depends on price. QD = D(P ). QS (Quantity supplied). Depends on price. QS = D(P ). Notes: (1.2) (1.1)

1. Market demand/supply is the sum of individual demands/supplies. 2. Assume individuals are price takers who cannot affect price.

Demand and Supply Curves

From Equations (1.1) and (1.2), draw demand curves and supply curves as follows:

Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY].

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Figure 1: Supply curve. Price higher, Figure 2: Demand curve. Price quantity supplied more. higher, quantity demanded less.

Figure 3: Shift in supply curve.

Figure 4: Shift in demand curve.

Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY].

2 Equilibrium in the Market

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Supply curve See Figure 1 and Figure 3: 1. Change in price causes change in quantity supplied, on the graph, there is movement along the curve accordingly. 2. Change in something other than price causes change in supply, on the graph, the supply curve shifts. Example. Production cost falls → supply curve S shifts to S’ (See Fig­ ure 3). Demand curve See Figure 2 and Figure 4: 1. Change in price causes change in quantity demanded, on the graph, there is movement along the curve accordingly. 2. Change in something...