Chapter 3 notes

Market equilibrium, the price mechanism and market efficiency

Equilibrium	Equilibrium- a state of rest at, self perpetuating in the absence of outside disturbances Both demand and supply are there The market is in equilibrium at point p since the amount people will buy for and the suppliers price are the same. Market clearing price- everything supplied will be sold Price is raied Quantit demanded has fallen Excess supply Producers will need to lower their prices Eventualy go back to equalibrium
The effect of changes in demand and supply upon the equilibrium	Outside disturbance A change in the determince of supply or demand The price will rise with the income to eliminate excess demand Thus price will rise till it reaches equilibrium.
The role of the price mechanism	Price mechanism Allocate resources Suppliers allocate to where the demand is too make more money The increase in price is what tells people what to make Invisible hand
Market efficiency	Consumur surplus is what he is gaining Willingness to pay vs what he paid Supplier surplus A price higher then what she was willing to accept
Allocative efficiency	Socially effecient The greatest community surplus Best for the consumer and supplier MSC- marginal social cost curve Effeciency is msb- marginal social benefit curve
Calculating and illustratin market equilibrium using linear demand and supply functions	Math of the curve QD=2000-200p QS=-400+400p Create a graph Plot the graph Where they meet is the equalibrium Qd +2000-200p Qs=-400+400p At equilibrium QD=QS 2000=-400+600p 2400=600p P=2400/600=4 dollars Substitute in the number 1400-200p Price will all until they are equal again 1400-200p Qs=-400+400p Qd+Qs Add 200 to both sides and simplify 1400=-400+600p Simplyfying further and adding 400 to both sides 1800=600p P=1800/600=3 dollar Plugit in
	the pictures above are in the correct placement in the notes on my printed copy