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# Demand & supply

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### Demand & supply

1. 1. where f means “is a function of” or “depends on,” and = quantity demanded of the good or service = price of the good or serviceM = consumers’ income (generally per capita) = price of related goods or services = taste patterns of consumers = expected price of the good in some future periodN = number of consumers in the marketTable 2.1 Variable Relation to quantity demanded Sign of slope parameterSummary of the P Inverse is negativeGeneralized (Linear) M Direct for normal goods is positiveDemand Function Inverse for inferior goods is negative Direct for substitute goods is positive Inverse for complement goods is negative Direct e is positive Direct is positive N Direct is positive = 1,800 – 20P + 12,000 – 12,500 = 1,300 – 20P
2. 2. TABLE 2.2 Price Quantity DemandedThe Demand Schedule for the \$65 0Demand for the Demand 60 100Function 50 300 40 500 30 700 20 900 10 1,100TABLE 2.3 (1) (2) (3) (4)Three DemandSchedules Quantity demanded Quantity demanded Quantity demanded Price (M = \$20,000) (M = \$20,000) (M = \$19,500) \$65 0 300 0 60 100 400 0 50 300 600 0 40 500 800 200 30 700 1,000 400 20 900 1,200 600 10 1,100 1,400 800TABLE 2.4 Determinants of demand Demand Demand Sign of slopeSummary of increasesa decreasesb parametercDemand Shifts 1. Income (M) Normal good M rises M falls c > 0 Inferior good M falls M rises c < 0 2. Price of related good ( Substitute good falls d > 0 Complement good falls rises d < 0 3. Consumer tastes ( ) rises falls e > 0 4. Expected price ( rises falls f > 0 5. Number of consumers (N) N rises N falls g > 0 a Demand increases when the demand curve shifts rightward. b Demand decreases when the demand curve shifts leftward c This column gives the sign of the corresponding slope parameter in the generalized demand function.
3. 3. SUPPLYIn general, economists assume that the quantity of a good offered for sale depends on six majorvariables” 1. The price of the good itself. 2. The price of the inputs used to produce the good. 3. The prices of goods related in production. 4. The level of available technology. 5. The expectations of the producers concerning the future price of the good. 6. The number of firms or the amount of productive capacity in the industry.Table 2.5 Variable Relation to quantity supplied Sign of slope parameterSummary of the P Direct is positiveGeneralized (Linear) Inverse l is negativeSupply Function Inverse for substitutes in production (wheat and corn) is negative Direct for complements in production (oil and gas) is positive Direct is positive Inverse is negative F Direct is positiveTABLE 2.6 Price Quantity DemandedThe Supply Scheduled for the \$65 750Supply Function 60 700 50 600 40 500 30 400 20 300 10 200
4. 4. TABLE 2.7 (1) (2) (3) (4)Three SupplySchedules Quantity supplied Quantity supplied Quantity supplied Price ) ) ) \$65 750 900 450 60 700 850 400 50 600 750 300 40 500 650 200 30 400 550 100 20 300 450 0 10 200 350 0TABLE 2.8 Determinants of supply Supply Supply Sign of slopeSummary of increasesa decreasesb parametercSupply Shifts 1. Price of inputs ( l < 0 2. Price of goods related in production ( Substitute good m < 0 Complement good m > 0 3. State of technology (T) T rises T falls n > 0 4. Expected price ( falls r < 0 5. Number of firms or productive capacity in industry (F) F rises F falls s > 0 a Supply increases when the supply curve shifts rightward. b Supply decreases when the supply curve shifts leftward. c This column gives the sign of the corresponding slope parameter in the generalized supply functionTABLE 2.9 (1) (2) (3) (4)Market Excess supply (+) orEquilibrium Quantity supplied Quantity demanded excess demand (-) Price ) \$65 750 0 +750 60 700 100 +600 50 600 300 +300 40 500 500 0 30 400 700 -300 20 300 900 -600 10 200 1,100 -900