Chpt. 4 - Equilibrium

A market is any setting that brings together suppliers and demanders

Shopping: Demanding consumer goods

Working: Supplying labor

Getting repairs: Hiring skilled labor

Saving: Supplying Credit

Borrowing: Demanding Credit

Traveling: Supplying USD and Demanding foreign currency

In class: demanding education

Equilibrium price – price where the market is at equilibrium

Equilibrium quantity – quantity where market is at equilibrium

Prices determined by both supply and demand

Consequences of shifts in supply and demand

If demand increases, price increase and quantity supplied increases to new equilibrium.

If demand decreases, price decreases and quantity supplied decreases to new equilibrium.

If supply increases, price decreases and quantity supplied increases to new equilibrium.

If supply decreases, price increases and quantity supplied decreases to new equilibrium.

Is the supply curve or demand curve (or both) shifting?

Is it an increase or a decrease?

How will this effect equilibrium quantity and price

GDP

GDP measures total output, total spending, and total income

Real GDP – No inflation

Nominal GDP – includes inflation values

GDP – Market value of all final goods and services produced within a country in a year.

Circular flow diagram:

Three ways to calculate:

Add up every dollar worth of output produced

Add up every dollar of spending

Add up every dollar of income earned

GDP = Consumption + Investment + Government Spending + Net Exports (CIGX)

Net Exports = Exports – Imports

Nominal GDP – todays prices

Real GDP – constant prices

Calculate “Percent Change in Value”: (new value – old value) / old value

Growth Rate: (this year – last year) / (last year)

Base year: year where we keep prices fixed

Growth Rate (NGDP) = Growth Rate (RGDP) + Growth Rate Price Level

Doubling time = 70 / (growth rate)

Y = f (L, H, K)

Y= output

F = function

L = Labor

H = Human Capital

K = Physical Capital

y = Y/L

y = gdp per capita

Diminishing Marginal Returns to capital: more we put in, less we get out

Catch up – smaller countries can catch up to others