Class 04 - Supply and Demand

2,403 views
2,039 views

Published on

The fundamentals of supply and demand. We take a look at President Obama\'s recent state of the union address and apply it to fundamental supply and demand principles to predict the outcomes.

1 Comment
0 Likes
Statistics
Notes
  • Be the first to like this

No Downloads
Views
Total views
2,403
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
34
Comments
1
Likes
0
Embeds 0
No embeds

No notes for slide
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Chapter 4 Demand, Supply, and Markets
  • Class 04 - Supply and Demand

    1. 1. Obama’s State of the Union Address <ul><li>What will be the impact on the: </li></ul><ul><ul><li>Price of U.S. renewable energy? </li></ul></ul><ul><ul><li>Production Possibilities Frontier (PPF)? </li></ul></ul>“ Obama predicted that because of the recovery plan, the United States will double its supply of renewable energy in the next three years. He also said the country will invest $15 billion a year to develop technology for green energy.” “ On education, Obama set a goal of having the highest college graduation rate in the world by 2020. “ [Source: CNNPolitics.com] January 27, 2010
    2. 2. ECON Designed by Amy McGuire, B-books, Ltd. McEachern 2010-2011 4 CHAPTER Demand, Supply, and Markets Macro
    3. 3. Demand LO 1 <ul><li>Demand </li></ul><ul><ul><li>The quantity consumers are willing and able to buy at each possible price during a given time period, other things constant </li></ul></ul><ul><li>Amounts purchased per period </li></ul><ul><ul><li>At each possible price </li></ul></ul><ul><li>Willing and able </li></ul><ul><li>Specific period </li></ul><ul><li>Other things constant </li></ul>
    4. 4. LO 1 The Demand Schedule and Demand Curve for Pizza The market demand D shows the quantity of pizza demanded, at various prices, by all consumers. Price and quantity demanded are inversely related. (a) Demand schedule Exhibit 1 D a b c d e Price per pizza Quantity Demanded Per week (millions) a b c d e $15 12 9 6 3 8 14 20 26 32 26 20 14 8 Millions of pizzas per week 32 0 9 6 3 12 Price per pizza $15
    5. 5. Shifts of the Demand Curve LO 1 <ul><li>Money income of consumers </li></ul><ul><li>Prices of other goods </li></ul><ul><li>Consumer expectations </li></ul><ul><li>The number or composition of consumers in the market </li></ul><ul><li>Consumer tastes </li></ul>
    6. 6. LO 1 An Increase in the Market Demand for Pizza An increase in the demand for pizza is shown by a rightward shift of the demand curve, so the quantity demanded increases at each price. Exhibit 2 D’ D b f 26 20 14 8 Millions of pizzas per week 32 0 9 6 3 12 Price per pizza $15
    7. 7. LO 2 The Supply Schedule and Supply Curve for Pizza The market supply S shows the quantity of pizza supplied, at various prices, by all pizza makers. Price and quantity supplied are directly related. (a) Supply schedule Exhibit 3 (b) Supply curve 24 20 16 12 Millions of pizzas per week 28 Price per pizza Quantity Supplied Per week (millions) $15 12 9 6 3 28 24 20 16 12 S 0 9 6 3 12 Price per pizza $15
    8. 8. LO 2 An Increase in the Supply of Pizza An increase in the supply of pizza is reflected by a rightward shift of the supply curve, from S to S’. Quantity supplied increases at each price level. Exhibit 4 24 20 16 12 Millions of pizzas per week 28 S’ S 0 9 6 3 12 Price per pizza $15 g h
    9. 9. LO 3 Equilibrium in the Pizza Market (a) Market schedules Exhibit 5(a) Millions of pizzas per Week Price per pizza Quantity Demanded Quantity Supplied Surplus or Shortage Effect on Price $15 12 9 6 3 8 14 20 26 32 28 24 20 16 12 Surplus of 20 Surplus of 10 Equilibrium Shortage of 10 Shortage of 20 Falls Falls Remains the same Rises Rises
    10. 10. LO 3 Equilibrium in the Pizza Market (b) Market curves 24 20 16 14 Millions of pizzas per week 26 0 Market equilibrium occurs at: Price where Q D =Q S ; Point c <ul><li>Above the equilibrium price: </li></ul><ul><ul><li>Q S >Q D ; </li></ul></ul><ul><ul><li>Surplus; </li></ul></ul><ul><ul><li>Downward pressure on P </li></ul></ul><ul><li>Below the equilibrium price: </li></ul><ul><ul><li>Q D >Q S ; </li></ul></ul><ul><ul><li>Shortage; </li></ul></ul><ul><ul><li>Upward pressure on P </li></ul></ul>Exhibit 5(b) S 9 6 3 12 Price per pizza $15 D c Shortage Surplus
    11. 11. LO 4 Effects of an Increase in Demand 24 20 Millions of pizzas per week 30 0 9 $12 Price per pizza Increase in demand: Rightward shift to D’ At P=$9: Q D >Q S ; shortage Upward pressure on P Q D decreases Q S increases New equilibrium g Higher P Higher Q Exhibit 6 S D c D’ g
    12. 12. LO 4 Effects of an Increase in Supply Increase in supply: Rightward shift to S’ At P=$9: Q S >Q D ; surplus Downward pressure on P Q D increases Q S decreases New equilibrium d Higher Q Lower P Exhibit 7 S 26 20 Millions of pizzas per week 30 0 $9 6 Price per pizza D c S’ d
    13. 13. LO 5 Price Floors and Price Ceilings Exhibit 11 (a) Price floor for milk (b) Price ceiling for rent No effect if price floor is set at or below equilibrium P No effect if price ceiling is set at or above equilibrium P S D $2.50 1.90 Price per gallon 19 14 Millions of gallons per month 0 24 S D $1,000 600 Monthly rental price 50 40 Thousands of rental units per month 0 60 Surplus Shortage
    14. 14. Setting Your Price as an Entrepreneur <ul><li>You think about producing a brand new product that’s never been done before… </li></ul><ul><li>How can you figure out the demand? </li></ul><ul><li>Can you then determine the market price? </li></ul><ul><li>To determine price, you also have to determine your (supply) cost…it’s where demand & supply meet! </li></ul>

    ×