Lecture Notes: Market Equilibrium and Exam Preparation

Announcements

• Office Hours: Listed on the webpage.
• Chapter Progression: Moving to Chapter 10 this week.
• Midterm Exam: Scheduled for next Monday.
  • Covers material through elasticity lecture.
  • Includes 23 multiple choice questions.
  • Bring WID, a number two pencil, a calculator, and a 3x5 note card.
• Lab Sessions: Thursday and Friday (Exam review sessions).
• Assignments:
  • Online assignment due by Friday (10-12 questions).
  • Lab and homework submissions due at the end of class.
• Tutoring: Available this week.

Midterm Exam Details

• Includes material up to the elasticity lecture.
• Important topics: profit maximization, break-even points, shutdown points.
• Recommendations for note cards:
  • Use a 3x5 note card, front and back.
  • Include formulas, definitions, examples, and graphs.

Market Equilibrium

• Concepts:
  • Interaction of supply and demand in determining market prices and quantity.
  • Equilibrium is where quantity supplied equals quantity demanded.
  • Market equilibrium is an elusive target due to shifting determinants.

What is a Market?

• Definition: An institution where buyers and sellers interact.
• Can be physical (like a grocery store) or virtual (like Amazon).
• Function:
  • Determine the price and quantity of goods/services.
  • Are voluntary; free entry and exit for consumers and producers.

Supply and Demand Curves

• Supply Curve: Positive slope, reflects producers' willingness to supply more as the price increases.
• Demand Curve: Negative slope, reflects consumers' willingness to buy less as the price increases.
• Market Equilibrium:
  • Intersection of supply and demand curves.
  • Results in equilibrium price (P*) and quantity (Q*).

Market Disequilibrium

• Surplus: Occurs when price is above equilibrium.
  • Results in quantity supplied being greater than quantity demanded.
  • Leads to price reduction to eliminate surplus.
• Shortage: Occurs when price is below equilibrium.
  • Results in quantity demanded being greater than quantity supplied.
  • Leads to price increase to eliminate shortage.

Mathematical Modeling

• Linear Supply and Demand:
  • Supply: $Q_s = 5 + 2P$
  • Demand: $Q_d = 20 - 4P$
• Finding Equilibrium:
  • Solve $Q_d = Q_s$ to find P* and Q*.
  • Example: P* = 2.5, Q* = 10.

Practical Examples

• Market Fluctuations: Constant due to external factors (e.g., news, policies).
• Price Adjustments: Producers and consumers respond to market signals, adjusting prices and quantities.

Closing Remarks

• Assignments: Turn them in by the end of class.
• Study Groups: Encouraged for exam preparation.
• Note Cards: Important for organizing thoughts and aiding with exam prep.

Ensure to review all materials and prepare adequately for the upcoming midterm exam. Utilize resources like office hours, tutoring, and study groups for support.