Learning Objectives Ø Explain the law of demand Ø Distinguish between changes in demand changes in quantity demanded Ø Explain the law of supply Ø Distinguish between changes in supply and changes in quantity supplied Ø Understand how supply and demand interact to determine equilibrium price and quantity Chapter 3 - Demand Supply 1
Did You Know That. . . Ø The average price of an apartment-sized condominium has often exceeded the average price of a standalone house? Ø The relative physical size of items does not determine the prices at which people exchange them for? Ø By using demand supply you can develop a better understanding of why relative size of an item typically has little to do with the price at which it sells? Chapter 3 - Demand Supply 2
Markets Ø Markets – Arrangements that individuals have for exchanging with one another – Represent the interaction of buyers and sellers for goods and services – Markets set the prices we pay and receive. • • Automobile market Health care market Labor market Stock market Chapter 3 - Demand Supply 3
The Law of Demand Ø Demand – A schedule showing how much of a good or service people will purchase at any price during a specified time period, other things being constant Chapter 3 - Demand Supply 4
The Law of Demand Ø Law of Demand – Quantity demanded is inversely related to price, holding other factors constant. • Price # Qd $ • Price $ Qd # Chapter 3 - Demand Supply 5
The Law of Demand Ø What are we holding constant? – Income – Tastes and preferences – Price of other goods – Many other factors Chapter 3 - Demand Supply 6
The Demand Schedule Ø The demand schedule – Table relating prices to quantity demanded – We must consider • Time dimension • Constant-quality units Ø Demand Curve – A graphical representation of the demand schedule – Negatively sloped line showing inverse relationship between price and quantity demanded, all else equal Chapter 3 - Demand Supply 7
The Individual Demand Schedule and the Individual Demand Curve Chapter 3 - Demand Supply 8
The Demand Schedule Ø Individual versus market demand curves Ø Market Demand – The demand of all consumers in the marketplace for a particular good or service – Summation at each price of the quantity demanded by each individual Chapter 3 - Demand Supply 9
Shifts in Demand Ø Scenario – Imagine the federal government gives every student registered in a college, university, or technical school in the United States a notebook computer. • If some factor other than price changes, we can show its effect by moving the entire demand curve, shifting the curve left or right. Chapter 3 - Demand Supply 10
A Shift in the Demand Curve Suppose universities prohibit the use of notebook computers Chapter 3 - Demand Supply Suppose the federal government gives every student a notebook computer 11
Determinants of Demand Ø Ceteris-Paribus Conditions – Determinants of the relationship between price and quantity that are unchanged along a curve – Changes in these factors cause a curve to shift Chapter 3 - Demand Supply 12
Normal and Inferior Goods Ø Normal Goods – Goods for which demand rises as income rises, most goods are normal goods Ø Inferior Goods – Goods for which demand falls as income rises Chapter 3 - Demand Supply 13
Shifts in Demand Ø Determinants of demand – Income – Tastes and preferences – The prices of related goods • Substitutes • Complements Chapter 3 - Demand Supply 14
Shifts in Demand Ø Substitutes – Two goods are substitutes when a change in the price of one causes a shift in demand for the other in the same direction as the price change. Chapter 3 - Demand Supply 15
Shifts in Demand Ø Complements – Two goods are complements when a change in the price of one causes an opposite shift in the demand curve for the other. Chapter 3 - Demand Supply 16
Shifts in Demand Ø Determinants of demand – Expectations • Future prices • Income • Product availability – Market size (number of buyers) Chapter 3 - Demand Supply 17
Shifts in Demand The Determinants of Demand Income: Normal Good Price Increase in income increases demand Decrease in income decreases demand D 3 D 1 D 2 Q/Units Chapter 3 - Demand Supply 18
Shifts in Demand The Determinants of Demand Income: Inferior Good Price Decrease in income increases demand Increase in income decreases demand D 3 D 1 D 2 Q/Units Chapter 3 - Demand Supply 19
Shifts in Demand The Determinants of Demand Tastes and Preferences Price Hybrid vehicles • Increase in demand SUVs • Decrease in demand D 3 D 1 D 2 Q/Units Chapter 3 - Demand Supply 20
Shifts in Demand The Determinants of Demand Price of Related Goods: Substitutes Price Butter and Margarine • Price of both = $2/lb • Price of margarine increases to $3/lb • Demand for butter increases D 1 D 2 Q/Butter Chapter 3 - Demand Supply 21
Shifts in Demand The Determinants of Demand Price of Related Goods: Complements Price Speakers and Amplifiers • Decrease the relative price of amplifiers • Demand for speakers increases Speakers and Amplifiers • Increase the relative price of amplifiers • Demand for speakers decreases D 3 D 1 D 2 Q/Speakers Chapter 3 - Demand Supply 22
Shifts in Demand The Determinants of Demand Expectations: Income, Future Prices Price A higher income or expectations of a higher future price will increase demand A lower income or expectations of a lower future price will decrease demand D 3 D 1 D 2 Q/Units Chapter 3 - Demand Supply 23
Shifts in Demand The Determinants of Demand Market Size (Number of Buyers) Price Increase in the number of buyers increases demand Decrease in the number of buyers decreases demand D 3 D 1 D 2 Q/Units Chapter 3 - Demand Supply 24
Shifts in Demand Ø Changes in demand versus changes in quantity demanded – A change in one or more of the non-price determinants (income, tastes, etc. ) will lead to a change in demand. • This is a shift of the whole curve. Chapter 3 - Demand Supply 25
Shifts in Demand Ø Changes in demand versus changes in quantity demanded – A change in a good’s own price leads to a change in quantity demanded. • This is a movement along the same curve. § ∆D is not the same as ∆Qd. Chapter 3 - Demand Supply 26
Movement Along a Given Demand Curve A change in the price changes the quantity of a good demanded, movement along the curve Chapter 3 - Demand Supply 27
The Law of Supply Ø Supply – Schedule showing relationship between price and quantity supplied for a specified time period, other things being equal – The amount of a product or service that firms are willing to sell at alternative prices Chapter 3 - Demand Supply 28
The Law of Supply Ø Law of Supply – The price of a product or service and the quantity supplied are directly related. • P # Qs # • P $ Qs $ Chapter 3 - Demand Supply 29
The Supply Schedule Ø The supply schedule is a table relating prices to quantity supplied at each price. Ø Supply Curve – A graphical representation of the supply schedule – Positively sloped line showing direct relationship between price and quantity supplied, all else equal Chapter 3 - Demand Supply 30
Shifts in Supply Ø Scenario – A new method of manufacturing flash memory pen drives reduces the cost of production dramatically. Chapter 3 - Demand Supply 31
A Shift in the Supply Curve If costs increase, supply decreases If costs decrease, supply increases If some other factor than price changes, the only way we can show its effect is by moving the entire supply curve Chapter 3 - Demand Supply 32
Price per Flash Memory Pen Drive ($) A Shift in the Supply Curve 5 S 2 S 1 a 4 c 3 When supply increases the quantity supplied will be greater at each price 2 1 0 2 4 6 8 10 12 14 Quantity of Flash Memory Pen Drives Supplied (millions of constant-quality units per year) Chapter 3 - Demand Supply 33
Price per Flash Memory Pen Drive ($) A Shift in the Supply Curve 5 S 2 S 1 a 4 b c 3 When supply increases the quantity supplied will be greater at each price d 2 1 0 2 4 6 8 10 12 14 Quantity of Flash Memory Pen Drives Supplied (millions of constant-quality units per year) Chapter 3 - Demand Supply 34
Price per Flash Memory Pen Drive ($) A Shift in the Supply Curve S 3 5 S 1 b 4 3 d a When supply decreases the quantity supplied will be less at each price c 2 1 0 2 4 6 8 10 12 14 Quantity of Flash Memory Pen Drives Supplied (millions of constant-quality units per year) Chapter 3 - Demand Supply 35
Shifts in Supply Ø Determinants of supply – Cost of inputs – Technology and productivity – Taxes and subsidies – Price expectations – Number of firms in industry Chapter 3 - Demand Supply 36
Shifts in Supply The Determinants of Supply Cost of Inputs Price Increase in cost decreases supply S 3 S 1 S 2 Decrease in cost increases supply Q/Units Chapter 3 - Demand Supply 37
Shifts in Supply The Determinants of Supply Technology and Productivity Price S 3 S 1 S 2 Decreases in productivity decrease supply Improvements in technology or increases in productivity increase supply Q/Units Chapter 3 - Demand Supply 38
Shifts in Supply The Determinants of Supply Taxes and Subsidies Price S 3 S 1 S 2 Increases in taxes or decreases in subsidies decrease supply Decreases in taxes or increases in subsidies increase supply Q/Units Chapter 3 - Demand Supply 39
Shifts in Supply The Determinants of Supply Price Expectations of higher future prices decrease supply S 3 S 1 S 2 Expectations of lower future prices increase supply Q/Units Chapter 3 - Demand Supply 40
Shifts in Supply The Determinants of Supply Number of Firms in Industry Price Decrease in the number of firms decreases supply S 3 S 1 S 2 Increase in the number of firms increases supply Q/Units Chapter 3 - Demand Supply 41
Shifts in Supply Ø Changes in supply versus changes in quantity supplied – A change in one or more of the non-price determinants will lead to a change in supply. • This is a shift of the whole curve. Chapter 3 - Demand Supply 42
Shifts in Supply Ø Changes in supply versus changes in quantity supplied – A change in a good’s own price leads to a change in quantity supplied. • This is a movement along the same curve. § ∆S is not the same as ∆Qs. Chapter 3 - Demand Supply 43
Putting Demand Supply Together Ø Putting demand supply together Ø Equilibrium (Market Clearing) Price – The price that clears the market – The price at which quantity demanded equals quantity supplied – The price where the demand curve intersects the supply curve Chapter 3 - Demand Supply 44
Putting Demand Supply Together Chapter 3 - Demand Supply 45
Putting Demand Supply Together Ø Equilibrium – The situation when quantity supplied equals quantity demanded at a particular price Chapter 3 - Demand Supply 46
Putting Demand Supply Together Ø Shortages – The situation when quantity demanded is greater than quantity supplied • Qd > Qs – Exist at any price below the market clearing price Chapter 3 - Demand Supply 47
Putting Demand Supply Together Ø Surpluses – The situation when quantity supplied is greater than quantity demanded • Qd < Qs – Exist at any price above the market clearing price Chapter 3 - Demand Supply 48
Policy Example: Should Shortages in the Ticket Market Be Solved by Scalpers? Ø If you’ve ever tried to get tickets to a big game you know all about “shortages. ” Ø Since the quantity of tickets is fixed, the price can go pretty high. Ø Enter the scalper. Chapter 3 - Demand Supply 49
Shortages of Super Bowl Tickets Chapter 3 - Demand Supply 50
Issues and Applications: The Market Clearing Prices of Baseball Cards Ø Various companies, such as Topps and Upper Deck, print sports trading cards that provide photos and stats on pro athletes. Ø Why are some of the market clearing prices so high? Ø The answer has to do with demand supply. (A relatively low supply helps explain the relatively high market clearing price. ) Chapter 3 - Demand Supply 51
Summary Discussion of Learning Objectives Ø The law of demand says that prices and quantity demanded are inversely related. – At a higher price people buy less, at a lower price people buy more. Chapter 3 - Demand Supply 52
Summary Discussion of Learning Objectives Ø A change in quantity demanded versus a change in demand – A change in quantity demanded is a movement along the same demand curve. – A change in demand is a shift of the whole demand curve. Chapter 3 - Demand Supply 53
Summary Discussion of Learning Objectives Ø The law of supply states that price and quantity supplied are directly related. – At a high price firms offer more; at a low price firms offer less. Ø A change in quantity supplied versus a change in supply – A change in quantity supplied is a movement along the same supply curve. – A change in supply is a shift of the whole supply curve. Chapter 3 - Demand Supply 54
Summary Discussion of Learning Objectives Ø Determining market price and equilibrium quantity – The demand supply curves intersect at the market clearing, or equilibrium point. – Surpluses exist if the price of the good is greater than the market price. – Shortages exist when the price of a good is below the market price. Chapter 3 - Demand Supply 55
Скачать презентацию Learning Objectives Ø Explain the law of demand
032ee1062118a68dd261e830ab6e71f5.ppt