Supply, Demand, and Equilibrium
This topic explores the basic microeconomic principles of supply, demand, and market equilibrium.
The treatment of this topic on the Atlas follows almost precisely that in Chapter 2, Supply, Demand, and Equilibrium of the open access Principles of Microeconomics course offered by Tyler Cowen and Alex Tabarrok at the Marginal Revolution University online education platform (http://www.mruniversity.com/courses/principles-economics-microeconomics, accessed 20 April 2016).
Topic learning outcome
Appropriately utilize and interpret results of applying to the analysis of public policy and management problems the basic principles of supply, demand and market equilibrium, including following core concepts.
Core concepts associated with this topic
|Budget Constraint||Diminishing Returns||Normal Good vs. Inferior Good|
Other (non-core) concepts
These concepts were not used directly in the MRU lessons but have been identified from courses and have short descriptions on the Old Atlas. Some may be added to the core and be elaborated in a page in this Atlas.
|Diminishing Marginal Rate of Substitution||Income Offer Curve||Necessary GoodNet Demand|
We believe that this topic and its core concepts can be mastered to the MPP/MPA level by watching and re-watching the 71 minutes of MRU course videos listed below (all accessed 20 April 2016) and doing the 28 sample questions associated with these video segments and reproduced at the bottom of this page and repeated on the appropriate concept pages.
Atlas core concept pages above.
The Demand Curve, at http://www.mruniversity.com/courses/principles-economics-microeconomics/demand-curve-shifts-definition (4 minutes).
The Supply Curve, at http://www.mruniversity.com/courses/principles-economics-microeconomics/supply-curve-definition-example (3 minutes).
The Equilibrium Price, at http://www.mruniversity.com/courses/principles-economics-microeconomics/equilibrium-price-supply-demand-example (5 minutes).
A Deeper Look at the Demand Curve, at http://www.mruniversity.com/courses/principles-economics-microeconomics/demand-curve-consumer-surplus-definition (8 minutes).
The Demand Curve Shifts, at http://www.mruniversity.com/courses/principles-economics-microeconomics/demand-curve-shifts (14 minutes).
A Deeper Look at the Supply Curve, at http://www.mruniversity.com/courses/principles-economics-microeconomics/supply-curve-producer-surplus-definition (7 minutes).
The Supply Curve Shifts, at http://www.mruniversity.com/courses/principles-economics-microeconomics/supply-curve-shift (12 minutes).
Exploring Equilibrium, at http://www.mruniversity.com/courses/principles-economics-microeconomics/equilibrium-supply-demand (6 minutes).
Does the Equilibrium Model Work, at http://www.mruniversity.com/courses/principles-economics-microeconomics/does-equilibrium-model-work (8 minutes).
Supply and Demand Terminology, at http://www.mruniversity.com/courses/principles-economics-microeconomics/supply-demand-definition (at 4 minutes).
Textbook readings in MPP and MPA courses
Varian, Hal R., and Jack Repcheck. Intermediate microeconomics: a modern approach. Vol. 6. New York, NY: WW Norton & Company, 2010. Chapter 6
Frank, Robert, Ian Parker, and Igela Alger. Microeconomics and Behaviour, 5th Canadian Edition. New York: McGraw-Hill, 2013. Chapters 1 and 2
Pindyck, Robert S. and Daniel L. Rubinfeld. Microeconomics, 8th Edition. Prentice-Hall, 2012. Chapter 1 and 2
Krugman, Paul and R. Wells, Microeconomics, 3rd edition. London: Worth Publishers, 2012. . Chapter 3
Krugman, Paul, Robin Wells, and Anthony Myatt. Microeconomics: 1st Canadian Edition. London: Worth Publishers, 2006. Chapters 3 and 5
Pindyck, Robert S., and D. Rubinfeld. Microeconomics, 7th edition. Upper Saddle River: Patience-Hall, 2007. Chapter 2
Mankiw, N. Gregory. Principles of Microeconomics, 6th edition. Mason: South-Western College Publishers, 2011. Chapter 2 Appendix and Chapter 4
Wheelan, Charles. Naked Economics: Undressing the Dismal Science. New York: W. W. Norton & Company, 2010. Chapter 1
Krugman, Paul and R. Wells, Microeconomics, 3rd edition. London: Worth Publishers, 2012. Chapter 3
Goolsbee, Austan, Steven Levitt, and Chad Syverson. Microeconomics. New York: Worth Publishers, 2013. Chapter 2
Pindyck, Robert S., and D. Rubinfeld. Microeconomics, 7th edition. Upper Saddle River: Patience-Hall, 2007. Chapter 1
Concept comprehension questions (from MRU Practice Questions for Chapter 2)
AQ102.02.01. When the price of a good increases the quantity demanded ____.
AQ102.02.03. Your roommate just bought an iPod for $200. She would have been willing to pay $500 for a machine that could store and replay that much music. How much consumer surplus does your roommate enjoy from the iPod?
AQ102.02.03. Along a supply curve, if the price of oil falls, what will happen to the quantity of oil supplied?
AQ102.02.07. Michael is an economist. He loves being an economist so much that he would do it for a living even if he only earned $30,000 per year. Instead, he earns $80,000 per year. (Note: This is the average salary of new economists with a Ph.D. degree.) How much producer surplus does Michael enjoy?
AQ102.02.08. When supply falls, what happens to quantity demanded in equilibrium?
AQ102.02.10. If the price in a market is above the equilibrium price, this creates ___________.
AQ102.02.14. Jules wants to purchase a Royale with cheese from Vincent. Vincent is willing to offer this tasty burger for $3. The most Jules is willing to pay for the tasty burger is $8 (after all, his girlfriend is a vegetarian, so he doesn’t get many opportunities for tasty burgers). How large are the potential gains from trade if Jules and Vincent agree to make this trade? In other words, what is the sum of producer and consumer surplus if the trade happens?
AQ102.02.17. What happened in Vernon Smith’s lab?
Page created by: Ian Clark, last modified on 16 May 2016.
Image: Minute 0.37 of MRU Video, at http://www.mruniversity.com/courses/principles-economics-microeconomics/equilibrium-price-supply-demand-example, accessed 19 April 2016.