What are the assumptions behind the market demand curve? What are the assumptions behind the market supply curve? Draw a market supply curve and a market demand curve for a hypothetical widget market. Label the equilibrium price p* and the equilibrium quantity.

Macroeconomics 201 Lecture #3: Supply, Demand, and Equilibrium

1. What are the assumptions behind the market demand curve?
2. What are the assumptions behind the market supply curve?
3. Draw a market supply curve and a market demand curve for a hypothetical widget market. Label the equilibrium price p* and the equilibrium quantity q*.
4. For a hypothetical widget market, label a price p1 that is above the equilibrium price. Using dotted lines, indicate the quantity demand qd1 and the quantity supplied qs1, corresponding to price p1. How would you describe this market situation?
5. Suppose there was excess demand in the widget market. Explain thoroughly the process by which the market would move from that disequilibrium position to the equilibrium.
6. Suppose there was a market surplus in the widget market. Explain thoroughly the process by which the market would move to the equilibrium.
7. Use a graph with market supply and demand functions to demonstrate the impact of an increase in income.
8. Use a graph with market supply and demand functions to demonstrate the impact of outlawing some technology used by firms in that market that increased productivity, and for which there is no substitute.
9. What is own price elasticity of demand and what are the factors that determine it?