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Economics Lecture Two (view source)
Revision as of 08:05, February 22, 2007
, 08:05, February 22, 2007Images removed. They were biased wikipedia images.
The supply and demand is the most basic relationship in all of economics. It usually looks like this:<ref>The graphs here use Wikipedia open source images.</ref>
The supply and demand is the most basic relationship in all of economics. It usually looks like this:<ref>The graphs here use Wikipedia open source images.</ref>
The above model for supply and demand helps us to consider the effect of shifts in demand and supply. First consider an increase in demand:
The above model for supply and demand helps us to consider the effect of shifts in demand and supply. First consider an increase in demand:
An increase in demand causes price to rise. The new equilibrium is at a point with higher price and greater quantity than before.
An increase in demand causes price to rise. The new equilibrium is at a point with higher price and greater quantity than before.
Next consider an increase in supply. Suppose farmers have better weather, for example, causing more crops at the harvest. Or suppose there is discovery of huge new oil reserves underground. Or suppose a new invention, such as Eli Whitney’s cotton gin, increases the production of a good (cotton). This curve shows what happens when there is an increase in supply:
Next consider an increase in supply. Suppose farmers have better weather, for example, causing more crops at the harvest. Or suppose there is discovery of huge new oil reserves underground. Or suppose a new invention, such as Eli Whitney’s cotton gin, increases the production of a good (cotton). This curve shows what happens when there is an increase in supply:
Can you interpret that? When the supply curve shifted downward as supply increased, the price decreased but the quantity increased. The new equilibrium is at lower price and greater quantity than before. Consumers are happier as supply increases. The discovery of new oil reserves, or inventions like the cotton gin, make consumers better off.
Can you interpret that? When the supply curve shifted downward as supply increased, the price decreased but the quantity increased. The new equilibrium is at lower price and greater quantity than before. Consumers are happier as supply increases. The discovery of new oil reserves, or inventions like the cotton gin, make consumers better off.