Your SlideShare is downloading. ×
0
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Chapter 4
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Chapter 4

432

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
432
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
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
  • Transcript

    • 1. Chapter 4Demand, Supply, and Markets
    • 2. The Law of Demand Law of Demand: the inverse ( or negative) relationship between the price of a good and the quantity consumers are willing to purchase, other things held constant (ceteris paribus).  As the price of a good rises, consumers buy less.
    • 3. The Law of Demand The demand curve allows you to find the quantity demanded by a buyer at different selling prices by moving along the curve
    • 4. The Substitution Effect of aPrice Change What explains this “Law of Demand?”  Lower Price= Greater Amount Consumer… Why?  Substitution effect: The consumer will substitute a cheaper good for a more expensive good.
    • 5. The Income Effect of a PriceChange IncomeEffect: A fall in the price of the good increases the consumers purchasing power.  The consumer can now buy more with NO change in their income level.
    • 6. The Demand Schedule andDemand Curve Demand: a curve or schedule showing the various quantities of a product consumers are willing to purchase at possible prices during a specific period of time, other things held constant.  Demand is the quantity consumers are both willing and able to buy at each possible price.
    • 7. Market Demand ScheduleA demand schedule is simply a table listing the various quantities of something consumers are willing to purchase prices  Example of the demand schedule
    • 8. Example of a Market Schedule Demand of Hula Hoops Price (in Dollars) Quantity Demanded (Hula Hoops) $10.00 0 8.00 10 6.00 20 4.00 30 2.00 40
    • 9. The Demand Curve Using theSchedule The demand curve is the plots of this table  Example of demand curve using the demand schedule
    • 10. Demand Curve of Hula HoopsPrice of the Hula Hoops(measu red indollars) Quantity Demanded of Hula Hoops
    • 11. Market Demand The transition from the individual to the market demand curve is done by totaling or summing the individual demand schedules (this is known as the horizontal summation of demand).  Example of horizontal summation
    • 12. Horizontal Summation ofDemand + = Market Demand of Hula Hoops
    • 13. Market Demand of HulaHoops Themarket demand of hula hoops, is the horizontal summation of the two individuals demand for hula hoops (i.e. the summation of quantity demanded at each individual price).
    • 14. Market Demand of Hula Hoops Price(measured in dollars) Quantity Demanded of Hula Hoops
    • 15. Changes in demand vs. changesin quantity demandedA movement along the curve- CHANGES IN PRICE ONLY Changes in quantity demanded  Example of movement
    • 16. Movement along the Curve A movement from $8 to $6 represents an increase in quantity demanded A movement from $8 to $10 represents an decrease in quantity demanded
    • 17. The distinction between changes in QuantityDemanded and Changes in Demand  Remember that price and quantity variables in our model are subject to the ceteris paribus assumption (other things held constant).  IT IS VERY IMPORTANT TO REMEMBER THE FOLLOWING:  If you are dealing with price of the item it is a movement along the curve, a change in quantity demanded not DEMAND, NO SHIFT!!!!!!
    • 18. Shifts of the Demand Curve: 1) Changes in consumer income  Normal goods  Inferior goods 2) Changes in the price of a related good  Substitutes  Complements 3) Changes in expectations- prices, income, or availability of goods. 4) Changes in the number of consumers in the market 5) Changes in consumer tastes and preferences
    • 19. Examples Income  Normal goods: direct relationship  Inferior goods: inverse relationship
    • 20. Changes in Demand Most of us would consider steak to be a normal good. Since, steak is a more expensive meat as income increases then more consumption of steak should occur. Thus, when consumer income increases, the demand for steak increases.
    • 21. Normal Good D2 D1
    • 22. Inferior Goods However, we could argue that Ramon Noodles would be an inferior good, meaning as income increases then the demand for Ramon Noodles would decline. Thus, when income increases, then the demand of Ramon Noodles will decrease.  This would be a leftward shift of the demand curve
    • 23. Examples Related goods  Substitute good: if the price of the substitutable good decreases, then demand decreases for the good of interest  Complementary good: if the price of the complement good increases, then demand decreases for the good of interest.
    • 24. Substitute goods Let’s assume that Pepsi and Coke are substitute goods for one another. If the price of Pepsi increases, then what happens to the demand of Coke?  The demand for Coke will increase, because now consumers will substitute Coke for Pepsi
    • 25. Graph of Coke Price(measured in dollars) D2 D1 Quantity Demanded of Coke (in millions)
    • 26. Complementary Goods Complementary goods are goods that we buy together, I think it is safe to say that peanut butter and jelly are bought together. Thus, what would happen to the demand of jelly, if the price of peanut butter increased?  The demand for jelly would decrease.  This is a leftward shift of the demand curve
    • 27. Demand for Jelly D1 D2
    • 28. Supply Supply indicates how much producers are willing and able to offer for sale per period at each possible price, other things held constant.
    • 29. Law of Supply There is a direct (positive) relationship between the price of a good or service and the amount of it that suppliers are willing to produce.  Example of the supply curve  When price increases, then the amount supplied will increase.  Why are sellers willing to sell more at a higher price? Does this make sense?
    • 30. Market Supply Again,it is the horizontal summation of the quantity produced by the sellers  Example of Horizontal Summation
    • 31. Changes in Supply VS.Changes in Quantity Supplies Increase or decrease in the price of the good is a movement along the curve This is a change in “quantity supplied”  Example here
    • 32. Shifts of the Supply Curve1) Changes in Technology2) Changes in the Prices of Relevant resources  Inputs into production.3) Changes in the Price of Alternative Goods  Other goods that the producer could produce3) Changes in Producer Expectations4) Changes in the Number of Producers
    • 33. MarketsA market is any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged.  Markets reduce transaction costs
    • 34. Market Equilibrium The market is where the buyers and sellers come together Equilibrium is no conflict between demand and supply  Quantity supplied= Quantity demand  Example of the equilibrium This is the theory of how the price system operates and it is the cornerstone of microeconomic analysis
    • 35. Equilibrium in the Pizza Market (a) Market schedules Millions of pizzas per Week Price per Quantity Quantity Surplus or pizza Demanded Supplied Shortage Effect on Price $15 8 28 Surplus of 20 Falls 12 14 24 Surplus of 10 Falls 9 20 20 Equilibrium Remains the same 6 26 16 Shortage of 10 Rises 3 32 12 Shortage of 20 Rises
    • 36. Equilibrium in the Pizza Market (b) Market curves S Market equilibrium occurs at:$15 Surplus Price where QD=QS; Point c 12 Above the equilibrium price:Price per pizza QS>QD; 9 c Surplus; Downward pressure on P 6 Below the equilibrium price: 3 Shortage D QD>QS; Shortage; Upward pressure on P 0 14 16 20 24 26 Millions of pizzas per week
    • 37. Economic Efficiency When a market reaches equilibrium, all the gains from trade between the buyer and seller have been fully realized and Economic efficiency is met
    • 38. Prices and Market order Prices communicate information to decision makers Prices coordinate the actions of the market participants Prices motivate economic players
    • 39. Invisible Hand Principle The tendency of market forces to channel the actions of self-interest individuals into activities that promote the general betterment of society The key to economic progress
    • 40.  What is this all about Price System?? What is that?
    • 41. Shifts of the Demand Curve  Increase in demand  Rightward shift of D curve  Shortage; Upward pressure on P  QD decreases; Qs increase  New equilibrium: Increase in P and Q  Decrease in demand  Surplus; Downward pressure on P  New equilibrium: Decrease in P and Q
    • 42. Exhibit 6Effects of an Increase in Demand S Increase in demand: Rightward shift to D’ $12 g At P=$9: QD>QS; shortagePrice per pizza c Upward pressure on P 9 QD decreases QS increases D’ New equilibrium g Higher P D Higher Q 0 20 24 30 Millions of pizzas per week
    • 43. Shifts in the Supply Curve  Increase in supply  Rightward shift of S curve  Surplus; Downward pressure on P  QD increases; QS decreases  New equilibrium:  P decreases; Q increases  Decrease in supply  New equilibrium:  P increase; Q decreases
    • 44. Effects of an Increase in Supply S Increase in supply: Rightward shift to S’ Price per pizza S’ At P=$9: QS>QD; surplus c $9 Downward pressure on P QD increases QS decreases 6 dExhibit 7 New equilibrium d Higher Q D Lower P 0 20 26 30 Millions of pizzas per week
    • 45. Simultaneous Shifts ofD and S curves  Both S and D increase;  Q increases  D shifts more: P increases  S shifts more: P decreases  Both S and D decrease:  Q decreases  D shifts more: P decreases  S Shifts more: P increases
    • 46. Exhibit 8Indeterminate Effect of an Increase in BothDemand and Supply (a) Shift of D dominates (b) Shift of S dominates S S Price Price S’ S’’p’ b a ap p D’ p’’ c D’’ D D 0 Q Q’ 0 Q Q’’ Units per period Units per period
    • 47. Disequilibrium  Surplus  Downward pressure on P  Shortage  Upward pressure on P  Disequilibrium  Temporary, or  Result of government intervention  Price floors  Price ceilings
    • 48. Disequilibrium  Price Floors  Set above equilibrium P  Minimum selling P  Surplus  Distort markets  Reduce economic welfare
    • 49. Disequilibrium  Price Ceilings  Set below the equilibrium P  Maximum selling P  Shortage  Distort markets  Reduce economic welfare
    • 50. Exhibit 11Price Floors and Price Ceilings (a) Price floor for milk (b) Price ceiling for rent S S SurplusPrice per gallon Monthly rental price$2.50 $1,000 1.90 600 Shortage D D 0 14 19 24 0 40 50 60 Millions of gallons per month Thousands of rental units per month No effect if price floor is No effect if price ceiling is set at or below equilibrium P set at or above equilibrium P

    ×