Demand and supply analysis: introduction
Distinguish among types of market
Market for factor of production
Market for services and finished goods
Explain the principals of demand and supply
Describe causes of shifts in and movements along demand and supply curves.
Describe the process of aggregating demand and supply curves.
Demand function, law of demand
Supply function, law of supply
Q=f(P)
S=f(P)
Q = f (P, ……)
Movement along the curve is a change in the market price that simple increases or
decreases the quantity supplied or demanded.
Change of all other factors will cause a shift of the curve.
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To every single price, add the demand or supply in the whole market.
There is 10 firms, q = 10 + 3P for each
So for P = 1, q = 13, Q = 130, P = 2, q = 16, Q = 160, get Q = 100 + 30P,
Or Q = 10q = 100 + 30P
Describe the concept of equilibrium, and mechanisms by which markets achieve
equilibrium.
Distinguish between stable and unstable equilibria, including price bubbles, and identify
instances of each equilibria.
Demand: Q = 40 – P
Supply: Q = 10 + 2P
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Equilibrium: P = 10, Q = 30
If P = 11, demand = 29 and supply = 32, excess supply.
If P = 9, demand = 31 and supply = 28, excess demand.
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If law of supply isn’t followed
Supply curve is less sensitive to price, like blue line in the graph, demand curve is the orange
line.
Stable equilibria
Supply curve is more sensitive to price, like orange line in the graph, demand curve is the
blue line.
Unstable equilibria
Describe types of auctions and calculate the winning price(s) of an auction;
Common value auction vs. private value auction
Ascending price auction (English auction) vs. descending auction (Dutch auction)
Sealed bid auction vs. second price sealed bid auction (Vickrey auction)
Single price auction
Noncompetitive bids vs. competitive bids