Topic Two

What Most Economic Questions Can be Reduced To:  Demand and Supply

Question for Thought: “An increase in the price of a product leads to a decrease in the quantity demanded, but an increase in demand leads to an increase in price.” Is this a paradox?

Required Readings:

  • Waymaker Module 2: Supply & Demand
  • The Wall Street Journal

Additional Resources:

LEARNING OBJECTIVES FOR TOPIC 2:

  • You should be able to identify the major factors (e.g. price) that influence the quantity of some product a consumer will buy, and explain how each factor affects that quantity (e.g. a higher price leads to lower quantity purchased).
  • You should be able to identify the major factors (e.g. wages) that influence the quantity of some product a firm will sell, and explain how each factor affects that quantity (e.g. higher wages lead to lower quantity supplied)
  • You should be able to use the theories of supply & demand to analyze the effects of a disturbance (i.e. a change in supply or demand) on the market for some good or service.  Analyze means determine how the disturbance affects the equilibrium price and quantity.
  • You should be able to determine who gains and who loses from a price ceiling or price floor.

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