MICRO 2

• Demand

  Q of a good demanded (per period of time) will fall as P rises and will rise as P falls, other things being equal (cateris paribus). Hence, there is an inverse rls between P and Qd

   

  Mkt dd sch for a particular good simply by adding the Qd by each consumer at each of the P lv (horizontal summation). It is the sum of total of all ind cons dd sch.

   
• Mkt dd curve : rls between P and Qd of a good in the mkt by all consumers of the good.

   

  Due to law of dd, dd curve is dw sloping demonstrating the inverse rls between P and Qd

  Height of dd curve measures the willingness to pay for a particular product.
• Demand function : Qd = a - bP
• Movement : point, shift : line
• Increase in demand

  1. Increase in price of substitution goods
  2. Fall in price of complementary goods
  3. Rise in income
  4. Changes in tastes, preferences, and fashion in favour of the good
  5. Increase in pop size
  6. Cons expect future price inc
• Supply

  Q of a particular good which producers (or firms) are willing to offer for sale at a particular price, during some particular period.

   

  Law of supply : P rises, Qs rises and vice-versa
• Mkt supply can be obtained by adding up all the Qs by each producer at each P lv

   

  Due to law of supply, supply curve is uw sloping, demonstrating the direct relationship between P and Qs

  The height of supply curve measures the willingness to supply the product in the mkt
• Supply function : Qs = c + dP
• Increase in supply

  1. Fall in prices of factors of production
  2. Fall in the profitability of alternate goods
  3. Increase in the number of firms/ producers in the mkt/ ind
  4. Producers expect future price falls
  5. A good season (agriculture good)
  6. Improvement of technology
• Eqm curves

  Qd = Qs
• Comp goods : supply inc, dd inc

  Subt goods : supply dec, dd inc

  Derived dd : dd inc, dd inc
• Cons & Prod Surplus

  CS : excess of willingness to pay (reservation price) - price paid by buyers

  PS : price received by the sellers - willingness to sell (cost)
• Price controls

  Price ceiling (max price) and price floor (min price) create DWL