Unit 2: Supply and Demand
In this unit we introduce the ceteris paribus assumption, which is crucial to building correlations among economic variables. When using ceteris paribus, we assume that all variables – with the exception of those in explicit consideration – will remain constant. We then examine the supply and demand models and the resulting market equilibrium that occurs where the supply curve and the demand curve intersect. We also explore what causes movements along the curve and the set of factors that cause the curves to shift, affecting both price and quantity, before discussing the meaning and significance of elasticity.
Next, we explore what happens when a market fails to produce a reasonable equilibrium. This situation typically occurs when either the market is not competitive or complete, or its participants are ill-informed. We evaluate various ways the government can address these failures and begin to understand the intricate relationship between government and economics.
Completing this unit should take you approximately 18 hours.
When left alone, a market will move to equilibrium; in other words, the market price will move to the level at which the quantity supplied equals the quantity demanded. However, this outcome can be both desirable and undesirable for buyers or sellers.