Overview
This lecture introduces the fundamental concepts of demand, supply, and equilibrium in markets for goods and services, as well as factors that cause changes in prices and quantities.
Introduction to Demand and Supply
- Demand and supply determine prices and quantities in markets for goods and services.
- Changes in demand or supply cause changes in prices and quantities sold.
- The demand and supply model is central to understanding economic market behavior.
Real-World Examples and Applications
- Organic food prices are typically higher than conventional equivalents, despite lower transportation costs.
- High prices for unique goods (e.g., celebrity memorabilia) are explained by increased demand or scarcity.
- Gasoline prices fluctuate due to shifts in demand (e.g., higher in summer) and supply (e.g., oil supply changes).
Economic Reasoning About Prices
- Economists focus on what determines prices and why prices change, rather than making judgments about them.
- Price changes result from movements in demand and supply, not from arbitrary decisions.
Chapter Learning Objectives
- Understand how demand and supply interact to set equilibrium price and quantity.
- Identify shifts in demand and supply and predict their effect on markets.
- Analyze changes in equilibrium using a systematic process.
- Learn about price ceilings and floors and their impact on markets.
Key Terms & Definitions
- Demand — the quantity of a good or service consumers are willing and able to buy at different prices.
- Supply — the quantity of a good or service producers are willing and able to sell at different prices.
- Equilibrium — the point where quantity demanded equals quantity supplied in a market.
Action Items / Next Steps
- Review upcoming sections: shifts in demand and supply, changes in equilibrium, and price controls.
- Prepare to apply the demand and supply model to real-world examples in homework or discussion.