The questions:

Economics for Global Managers: Concept Check A-4 Q7. A change in the expected price of one product changes its demand and supply in opposite directions. . The individual demand reflects the amount that the individual demander is willing to buy at a given price. The individual supply reflects the amount that the individual supplier is willing to sell at a given price. . The demand/supply reflects a causal relation where the price is usually regarded as the endogenous determinant. . Any non-price factor that changes the demand/supply causes the demand/supply curve to shift horizontally. Q8. As a consumer has no incentive to change his/her choice, the consumer is making the optimal best decision. . The market mechanism is essentially driven by the price, which directly affects self-interest of buyers and sellers. . The market equilibrium is a stable outcome as both buyers and sellers cannot be better-off by making other choices. Q9. The minimum wage set by the government benefits workers. . An effective government intervention distorts the market equilibrium and makes some participants worse-off. POO Q = D(p, ) . ( = S(p, =) p= a+ b-Q = MC(@) p=a - b-( =MB(Q) OO- OO- OO- O O P 1 Generalized Demand . Supply Function in One Period: Q = D(p, z) . ($ = S(p, z) Linear Form: Q = a - b.p . Of = a + bp with a >0 and b > 0 Quantity Demanded . Supplied: QD . Qs Explained/Dependent Variable Endogenous Current Own Price p Demand . Supply Shocks z Explanatory/Independent Variables Exogenous 3 Inverse Demand . Supply Function in One Period: p = D(QP, :) . p = S(05, :) Demand . Supply Curve > Marshall's Cross/Scissors Linear Form: p = a - b-Q" . p = a + b-Q with a > 0 and b >0 3 Intercept for Demand . Supply Curve3 Intercept for Demand . Supply Curve 1. y-Intercept a for Demand . Supply Curve: Reservation Price . Demander . Supplier > Buyer . Seller > Pay . Receive Money > Price Ceiling . Floor . Indifference between Buy . Sell and Not Buy . Not Sell 2. x-Intercept for Demand Curve: Max Paying Q > Market Size Available for All Potential Sellers Downward . Upward Sloping Demand . Supply Curve Buyer . Seller: Lower . Higher p = Less . More Money Paid . Received = Higher Q . Q Negative . Positive Slope = Ap/AQP =-b . Ap/AQS = b Law of Demand by Self Interest . No Law of Supply Movement along Demand . Supply Curve Change in Endogenous p = Change in Endogenous Q . 05 Ceteris Paribus: Holding Exogenous z Constant Parallel Rightward . Leftward Shift in Demand . Supply Curve: Increase . Decrease in O with Changes in z Change in Endogenous z1 => Change in Endogenous @" . Q Ceteris Paribus: Holding Exogenous p, z2 ... Constant Major Demand Shocks : Major Supply Shocks : 1. Cross Price 1. Factor/Input Price => Production Cost 2. Expected/Future Own Price 2. Expected/Future Own Price 3. Consumer's Income 3. Production Technology 4. Consumer's Taste Preferences 4. Weather/Climate for Agricultural Product 5. Information Market Demand . Supply Function: Eqi (p, z) at Each p Market Demand . Supply Curve: Horizontal Sum of Individual Demand . Supply Curves Equilibrium by Market/Price Mechanism: Q" = QS = Equilibrium (* = Trading/Buy/Sell Volume 1. Market Clearing p* = Trading Price = Social MB = Social MC Max Social NB 2. Temporary Disequilibrium with Current p > .

05 . Marshall . Walras View: Dynamic Quantity . Price Adjustment by Adam Smith's Invisible Hand . Surplus/Inventory . Shortage/Queue = Ap 0 by Sellers = Entry . Exit of Buyers => Equilibrium 3. Comparative Statics: Initial Equilibrium = Shock = New Equilibrium . Static . Dynamic Equilibrium: Microeconomic . Macroeconomic Analysis Effective Price Control by Government Price Ceiling: Shortage by Rent . Gasoline/Electricity/Water/Train Price below p* = Black Market Price Floor: Unemployment by Minimum Wage above p*l. Characterize the product and seller whose supply curve is entirely on the y-axis. 2. Characterize the product and seller whose supply curve is entirely on the x-aXis. 3. Characterize the product and buyer whose demand curve is entirely on the y-axis