Market equilibrium

Lecture handout: Market equilibrium*

Textbook Reading: Chapter 3 (Intro, Section 3.1, 3.2; pp. 65-83)

Markets are where buyers and sellers meet: where demand and supply interact, and resources get exchanged.

This video shows how demand and supply both originate from the concept of value.

My preferred way of teaching this content is the trading simulation called “Trading in a Pit Market”.

Group activity:

This video shows how prices are formed at the London Metal Exchange:

And this video shows a behind the scenes look at “the ring”:

A good class activity to teach these concepts is the following worksheet:

Group activity:  Comparative Statics Worksheet

 

Instructor resource: Comparative Statics Worksheet Solutions

There is also this longer assignment:

Group activity:  Equilibrium Assignment, July 2018 and complete this Equilibrium Assignment Form
Instructor resource: Equilibrium Assignment Solutions, July 2018

This topic is all about how market exchange generates prices, which can be used for information purposes. Some of my favourite examples of using price data to tell a story are the two charts below:

 

Here’s a look at applying some comparative statics to the UK housing market:

Here’s a more traditional treatment of demand and supply analysis:

Interactive practice: Shifts in supply or demand

Interactive practice: Shifts in both supply and demand curves

Here’s an excellent video on the role of prices:

This article provides a collection of empirical evidence of the effect of minimum wages.

Here’s a video on rent control:

In 2020 Berlin adopted rent control and, as economists predicted, it didn’t work. As Andreas Kluth points out in that article:

In a shortage, regulating the price [of a good] only trades one expression of scarcity (high prices) for another (empty shelves).

Perhaps the key lesson of economics is that you cannot escape scarcity. A good resource on price gouging is Mike Munger’s interview with Russ Roberts, on EconTalk (Jan 8th, 2007).


This page ties into Chapter 3 of Economics: A Complete Guide for Business

Learning Objectives: Apply basic comparative statics to a range of economic events. Understand how interventions affect market activity

Focus on diversity: Legendary microeconomics instructor Walter Williams (1936-2020) wrote extensively on how government restrictions on mutually beneficial exchange can harm minority groups. He studied the impact of minimum wage legislation in apartheid South Africa and published a book called ‘The State Against Blacks‘ . Here is a video about his autobiography, ‘Up From the Projects‘. Here is video footage of a toast from 2003, which occurred when I was his student. Here is a fitting GMU economics department tribute to his career. And here is the gift he left people like me, to stop me doing things like this

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