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# Supply and market equilibriun

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### Supply and market equilibriun

1. 1. SUPPLY Quantity supplied of any good is the amount that sellers are willing to sell in the market
2. 2. Determinants or factors affecting of supply:  Price of goods  Input prices(land, labor, capital, raw material)  Technology  Expectations  Number of sellers (Market supply curve)  Govt Policies  Price of related goods  Seasonal Changes
3. 3. Law of Supply:  Other things equal, the quantity supplied of a good rises when the price of the good rises.  Quantity supplied is positively related to the price of the good  Supply schedule is a table that shows the relationship between the price of a good and the quantity supplied  Supply curve graphs the supply schedule. It is upward sloping
4. 4. Supply Schedule  A supply schedule is a table that shows the quantities producers are willing to supply at various prices Price per Widget (\$) Quantity Supplied of Widget per day \$5 10 \$4 8 \$3 6 \$2 4 \$1 2
5. 5. What do you notice about the supply curve? How would you describe the slope of the supply curve? Do you think that price and quantity supplied tend to have this relationship? \$0 \$1 \$2 \$3 \$4 \$5 \$6 0 2 4 6 8 10 12 PriceperWidget Quantity Supplied of Widgets Supply Curve for Widgets Supply Curve
6. 6. Supply curve
7. 7. Market Versus Individual Supply  Market supply is derived by horizontally summing the individual supply curves  Market supply curve shows how the quantity supplied varies as the price of the good varies  Any change that varies the quantity supplied at a given price shifts the supply curve  Changes in price that varies the quantity supplied in the market is represented as a movement along the supply curve
8. 8. SUPPLY AND DEMAND  How do supply and demand combined together determine the quantity and price of a good sold in the market?  Supply and demand curves intersect. At this equilibrium price quantity supplied equals quantity demanded  Equilibrium is a situation in which supply equals demand  Equilibrium price is also called as the market clearing price as quantity supplied equals quantity demanded
9. 9. SUPPLY AND DEMAND What happens when market price is not equal to the equilibrium price?  Excess supply- surplus in the market  Excess demand- shortage in the market Free markets reach equilibrium through the interaction of buyers and sellers and price is the tool through which the market is cleared
10. 10. Market Equilibrium  The operation of the market depends on the interaction between buyers and sellers.  An equilibrium is the condition that exists when quantity supplied and quantity demanded are equal.  At equilibrium, there is no tendency for the market price to change.
11. 11. Market Equilibrium  Only in equilibrium is quantity supplied equal to quantity demanded. • At any price level other than P0, the wishes of buyers and sellers do not coincide.
12. 12. Market Disequilibrium  Excess demand, or shortage, is the condition that exists when quantity demanded exceeds quantity supplied at the current price. • When quantity demanded exceeds quantity supplied, price tends to rise until equilibrium is restored.
13. 13. Market Disequilibria  Excess supply, or surplus, is the condition that exists when quantity supplied exceeds quantity demanded at the current price. • When quantity supplied exceeds quantity demanded, price tends to fall until equilibrium is restored.
14. 14. Increases in Demand and Supply  Higher demand leads to higher equilibrium price and higher equilibrium quantity.  Higher supply leads to lower equilibrium price and higher equilibrium quantity.
15. 15. Decreases in Demand and Supply  Lower demand leads to lower price and lower quantity exchanged.  Lower supply leads to higher price and lower quantity exchanged.
16. 16. Relative Magnitudes of Change • The relative magnitudes of change in supply and demand determine the outcome of market equilibrium.
17. 17. Relative Magnitudes of Change • When supply and demand both increase, quantity will increase, but price may go up or down.
18. 18. Extra Examples of change in demand and supply
19. 19. 1. The income of the Chapel Hill townies declines after an early loss during March Madness. Quantity Price D S D1 P1 Q1 P2 Q2
20. 20. 2. Chapel Hill is named one of the most beautiful towns in North Carolina and tourism doubles Quantity Price D S D1 P2 P1 Q1 Q2
21. 21. 3. The price of blue ties decreases. (Blue ties are a substitute good for purple ties) Quantity Price D S D1 P1 Q1 P2 Q2
22. 22. 4. The Federal government has been warning the public about the possibility of a recession and job loss in the RDU area. (Think expectations!) Quantity Price D S D1 P1 Q1 P2 Q2
23. 23. 5. The price of purple striped shirts decreases (Purple striped shirts are a complement to purple ties) Quantity Price D S D1 P1 Q1 P2 Q2
24. 24. 6. The price of silk increases (ties are made with silk). Quantity Price D S P2 S1 P1 Q2 Q1
25. 25. 7. The government adds a subsidy to tie production. Quantity Price D S S1 P1 Q1 P2 Q2
26. 26. 8. After the release of Alan Greenspan’s first jazz flute album, purple tie producers are expecting a huge increase in demand and thus an increase in the price. Quantity Price D S S1 P1 Q1 P2 Q2
27. 27. 9. Congress enacts new tax on the production of purple ties. Quantity Price D S S1 P1 Q1 P2 Q2
28. 28. 10. As the popularity of purple ties sweeps the greater Orange County area, new producers enter the purple tie market. Quantity Price D S S1 P1 Q1 P2 Q2
29. 29. 11. Purple ties are named by GQ magazine as a “must have” for all young professionals. At the same time, a new textile machine decreases the cost of producing purple ties. Quantity Price D S S1 D1 P1 Q1 Q2
30. 30. 12. The price of pink ties (a related good that most purple tie producers also produce) rises as spring approaches. Tie consumers in Chapel Hill begin to expect purple ties to be put on sale since spring is coming, so they put off purchasing. Quantity Price D S S1 D1 P1 Q1Q2