Demand and Supply

Loading...

CHAPTER CHECKLIST

Chapter

Demand and Supply

4

1. Distinguish between quantity demanded and demand and explain what determines demand. 2. Distinguish between quantity supplied and supply and explain what determines supply. 3. Explain how demand and supply determine price and quantity in a market, and explain the effects of changes in demand and supply.

Copyright © 2002 Addison Wesley

LECTURE TOPICS
COMPETITIVE MARKETS A market is any arrangement that bring buyers and sellers together.


1

COMPETITIVE MARKETS In this chapter, we study a competitive market that has so many buyers and so many sellers that no individual buyer or seller can influence the price.

4.1 DEMAND Quantity demanded The amount of a good, service, or resource that people are willing and able to buy during a specified period at a specified price. The quantity demanded is an amount per unit of time. For example, the amount per day or per month.

4.1 DEMAND


4.1 DEMAND


2

4.1 DEMAND

4.1 DEMAND

Demand schedule A list of the quantities demanded at each different price when all the other influences on buying plans remain the same.

Demand curve A graph of the relationship between the quantity demanded of a good and its price when all other influences on buying plans remain the same.

4.1 DEMAND

4.1 DEMAND


3

4.1 DEMAND


4.1 DEMAND Figure 4.3 shows changes in demand.

Change in the quantity demanded A change in the quantity of a good that people plan to buy that results from a change in the price of the good.

Change in demand A change in the quantity that people plan to buy when any influence other than the price of the good changes.

4.1 DEMAND The main influences on buying plans that change demand are: • Prices of related goods

1. When demand decreases, the demand curve shifts leftward from D0 to D1. 2. When demand increases, the demand curve shifts rightward from D0 to D2.

4.1 DEMAND Prices of Related Goods

Substitute A good that can be consumed in place of another good. For example, apples and oranges.

• Income • Expectations • Number of buyers • Preferences

The demand for a good increases, if the price of one of its substitutes rises. The demand for a good decreases, if the price of one of its substitutes falls.

4

4.1 DEMAND Complement A good that is consumed with another good. For example, ice cream and fudge sauce. The demand for a good increases, if the price of one of its complements falls. The demand for a good decreases, if the price of one of its complements rises.

4.1 DEMAND Expectations Expected future income and expected future prices influence demand today. For example, if the price of a computer is expected to fall next month, the demand for computers today decreases. Number of Buyers

4.1 DEMAND Income The demand for a normal good increases if income increases. The demand for an inferior good decreases if income increases.

4.1 DEMAND Preferences When preferences change, the demand for one item increases and the demand for another item (or items) decreases. Preferences change when: • People become better informed • New goods become available.

The greater the number of buyers in a market, the larger is the demand for any good.

5

4.1 DEMAND


4.2 SUPPLY Quantity supplied The amount of a good, service, or resource that people are willing and able to sell during a specified period at a specified price. The Law of Supply Other things remaining the same, • If the price of a good rises, the quantity supplied of that good increases. • If the price of a good falls, the quantity supplied of that good decreases.

4.2 SUPPLY


4.2 SUPPLY Supply schedule A list of the quantities supplied at each different price when all other influences on selling plans remains the same.

Supply curve A graph of the relationship between the quantity supplied and the price when all other influences on selling plans remain the same.

6

4.2 SUPPLY

4.2 SUPPLY


4.2 SUPPLY

4.2 SUPPLY


Change in supply A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.

7

4.2 SUPPLY 4.2 SUPPLY Figure 4.7 shows changes in supply. 1. When supply decreases, the supply curve shifts leftward from S0 to S1. 2. When supply increases, the supply curve shifts rightward from S0 to S2.

4.2 SUPPLY Prices of Related Goods A change in the price of one good can bring a change in the supply of another good.

Substitute in production A good that can be produced in place of another good. For example, a truck and an SUV in an auto factory. • The supply of a good increases if the price of one of its substitutes in production falls.

4.2 SUPPLY The main influences on selling plans that change supply are: • Prices of related goods • Prices of resources and other Inputs • Expectations • Number of sellers • Productivity

4.2 SUPPLY Complement in production A good that is produced along with another good. For example, straw is a complement in production of wheat. • The supply of a good increases if the price of one of its complements in production rises. • The supply a good decreases if the price of one of its complements in production falls.

• The supply a good decreases if the price of one of its substitutes in production rises.

8

4.2 SUPPLY Prices of Resources and Other Inputs Resource and input prices influence the cost of production. And the more it costs to produce a good, the smaller is the quantity supplied of that good. Expectations • Expectations about future prices influence supply. • Expectations of future input prices also influence supply.

4.2 SUPPLY


4.2 SUPPLY Number of Sellers The greater the number of sellers in a market, the larger is supply.

Productivity Productivity is output per unit of input. An increase in productivity lowers costs and increases supply.

4.3 MARKET EQUILIBRIUM Market equilibrium When the quantity demanded equals the quantity supplied—when buyers’ and sellers’ plans are consistent.

Equilibrium price The price at which the quantity demanded equals the quantity supplied.

Equilibrium quantity The quantity bought and sold at the equilibrium price.

9

4.3 MARKET EQUILIBRIUM Figure 4.9 shows the equilibrium price and equilibrium quantity. 1. Market equilibrium at the intersection of the demand curve and the supply curve. 2. The equilibrium price is $1 a bottle. 3. The equilibrium quantity is 10 million bottles a day.

4.3 MARKET EQUILIBRIUM

4.3 MARKET EQUILIBRIUM


Surplus or Excess Supply The quantity supplied exceeds the quantity demanded.

Shortage or Excess Demand The quantity demanded exceeds the quantity supplied.

4.3 MARKET EQUILIBRIUM

Figure 4.10(a) market achieves equilibrium.

Figure 4.10(b) market achieves equilibrium.

At $1.50 a bottle: 1. Quantity supplied is 11 bottles.

At 75 cents a bottle: 5. Quantity demanded is 11 bottles.

2. Quantity demanded is 9 bottles.

6. Quantity supplied is 9 bottles.

3. There is a surplus.

7. There is a shortage.

4. Price falls until the market is in equilibrium.

8. Price rises until the market is in equilibrium.

10

4.3 MARKET EQUILIBRIUM

4.3 MARKET EQUILIBRIUM

Figure 4.11(a) shows the effects of an increase in demand.

Figure 4.11(b) shows the effects of a decrease in demand.

1. An increase in demand shifts the demand curve rightward.

1. A decrease in demand shifts the demand curve leftward.

2. The price rises to restore market equilibrium.

2. The price falls to restore market equilibrium.

3. Quantity supplied increases along the supply curve.

3. Quantity supplied decreases along the supply curve.

4. Equilibrium quantity increases.

4. Equilibrium quantity decreases.

4.3 MARKET EQUILIBRIUM


4.3 MARKET EQUILIBRIUM Figure 4.12(a) shows the effects of an increase in supply. 1. An increase in supply shifts the supply curve rightward. 2. The price falls to restore market equilibrium. 3. Quantity demanded increases along the supply curve. 4. Equilibrium quantity increases.

11

4.3 MARKET EQUILIBRIUM Figure 4.12(b) shows the effects of a decrease in supply. 1. A decrease in supply shifts the supply curve leftward. 2. The price rises to restore market equilibrium.

4.3 MARKET EQUILIBRIUM


3. Quantity demanded decreases along the supply curve.

• Price changes in the same direction as the change in supply.

4. Equilibrium quantity decreases.

• Quantity changes in the opposite direction to the change in supply.

4.3 MARKET EQUILIBRIUM Figure 4.13(a) shows the effects of an increase in both demand and supply. An increase in demand shifts the demand curve rightward and an increase in supply shifts the supply curve rightward.

4.3 MARKET EQUILIBRIUM Increase in Both Demand and Supply • Increases the equilibrium quantity. • The change in the equilibrium price is ambiguous because the: Increase in demand raises the price. Increase in supply lowers the price.

1. Quantity increases. 2. Price might rise or fall.

12

4.3 MARKET EQUILIBRIUM Figure 4.13(b) shows the effects of a decrease in both demand and supply. A decrease in demand shifts the demand curve leftward and a decrease in supply shifts the supply curve leftward.

4.3 MARKET EQUILIBRIUM Decrease in Both Demand and Supply • Decreases the equilibrium quantity. • The change in the equilibrium price is ambiguous because the: Decrease in demand lowers the price Decrease in supply raises the price.

3. Quantity decreases. 4. Price might rise or fall.

4.3 MARKET EQUILIBRIUM Figure 4.14(a) shows the effects of an increase in demand and a decrease in supply. An increase in demand shifts the demand curve rightward, and a decrease in supply shifts the supply curve leftward.

4.3 MARKET EQUILIBRIUM Increase in Demand and Decrease in Supply • Raises the equilibrium price. • The change in the equilibrium quantity is ambiguous because the: Increase in demand increases the quantity. Decrease in supply decreases the quantity.

1. Price rises. 2. Quantity might increase, decrease, or not change.

13

4.3 MARKET EQUILIBRIUM Figure 4.14(b) shows the effects of a decrease in demand and an increase in supply. A decrease in demand shifts the demand curve leftward, and an increase in supply shifts the supply curve rightward.

4.3 MARKET EQUILIBRIUM Decrease in Demand and Increase in Supply • Lowers the equilibrium price. • The change in the equilibrium quantity is ambiguous because the: Decrease in demand decreases the quantity. Increase in supply increases the quantity.

3. Price falls. 2. Quantity might increase, decrease, or not change.

4.3 MARKET EQUILIBRIUM < Demand and supply in markets for goods, services, and resources determine quantities and prices. < The market price makes buying and selling plans consistent.

Chapter

The End

< Demand, supply, and market equilibrium determine what, how, and for whom goods and services are produced.

4

Copyright © 2002 Addison Wesley

14

Loading...

Demand and Supply

CHAPTER CHECKLIST Chapter Demand and Supply 4 1. Distinguish between quantity demanded and demand and explain what determines demand. 2. Distingui...

2MB Sizes 3 Downloads 0 Views

Recommend Documents

Supply & Demand - Demand and Supply - Supply and Demand
Why are those new shoes that everyone wants so expensive? And why does turkey go on sale right after Thanksgiving? This

demand and supply klasik
Rahmasari.Putri'S BloG: Tugas Teori Ekonomi, Soal … Apr 06, 2010· 26.Suatu hal yang melandasi kaum klasik dalam pasar

DEMAND AND SUPPLY
$1.50, $2.00, and $2.50. To make a supply curve, we graph the quantity supplied on the x-axis and the price on the y-axi

Supply and Demand
Why does the newest Ipad model cost almost $700 dollars but in six month they will cost only $400? The price of an Ipad

Supply and Demand
many people reply, “Supply equals demand.” This statement is a shorthand description of one of the simplest yet most

Supply and Demand
1. Interpret supply and demand curves. 2. Understand the difference between a change in supply (demand) and a change in

Demand and Supply Problems
Demand and Supply Worksheet. Answer the questions, respond to the statement, respond to the commands by using the refere

Supply and Demand - Investopedia
This change in taste may be due to a new health study touting the benefits of corn, alternative grains such as wheat may

demand and supply - ModPhD
Although each good is unique, it has substitutes—other goods that can be used in its place. As the opportunity cost of

3 DEMAND AND SUPPLY
3 DEMAND AND. SUPPLY. □ Markets and Prices. Topic: Price and Opportunity Cost. Skill: Conceptual. 1) A relative price