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101 lecture 4

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Lecture 4

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101 lecture 4

  1. 1. Microeconomics Chapter 4 The Market Forces of Supply and Demand
  2. 2. Review Exam 1 Average 76 Range 32 - 92
  3. 3. Number Total Utility Marginal Utility Change in Total Utility Average Utility Total Utility ÷ Number 1 10 10 10.00 2 15 5 7.50 3 19 4 6.33 4 23 4 5.75 5 25 2 5.00
  4. 4. market competitive market quantity demanded law of demand demand schedule demand curve normal good inferior good substitutes complements Key Terms quantity supplied law of supply supply schedule supply curve equilibrium equilibrium price equilibrium quantity surplus shortage law of supply and demand
  5. 5. Market where buyers and sellers interact
  6. 6. Supply and Demand sellers supply buyers demand
  7. 7. Competitive Market many buyers and sellers no one has power to change price
  8. 8. Ceteris Paribus “all else equal”
  9. 9. Quantity Demanded QD amount people are willing and able to buy
  10. 10. Law of Demand when price goes up quantity demand goes down when price goes down quantity demand goes up
  11. 11. Law of Demand inverse relationship price up - QD down price down - QD up
  12. 12. Price Quantity 90 1 80 2 70 3 60 4 50 5 40 6 30 7 20 8 10 9 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Demand Schedule Demand Curve If I have a schedule I can make a curve If I have a curve I can make a schedule
  13. 13. Individual Demand Market Demand add up all of the individual demand curves
  14. 14. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve Price changes demand curve does not change quantity demanded changes
  15. 15. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  16. 16. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve Price does not change demand curve shifts quantity demanded changes
  17. 17. Shift in Demand Income Prices of Related Goods Tastes Population & Demographics Expected Future Prices
  18. 18. Why does the demand curve slope downwards? Substitution Effect Income Effect
  19. 19. Substitution Effect the good is more or less expensive relative to other goods that are substitutes.
  20. 20. Income Effect the effect of a price change on consumer’s purchasing power.
  21. 21. Complements goods or services that are used together
  22. 22. Complements
  23. 23. Substitutes goods or services that can be used for the same purpose
  24. 24. Normal Good Demand increases as income rises and decreases as income falls
  25. 25. Inferior Good Demand decreases as income rises and increases as income falls
  26. 26. Quantity Supplied QS amount people are willing and able to sell
  27. 27. Law of Supply when price goes up quantity supplied goes up when price goes down quantity supplied goes down
  28. 28. Law of Supply direct relationship price up - QS up price down - QS down
  29. 29. Price Quantity 90 9 80 8 70 7 60 6 50 5 40 4 30 3 20 2 10 1 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Supply Schedule Supply Curve If I have a schedule I can make a curve If I have a curve I can make a schedule
  30. 30. Individual Supply Market Supply add up all of the individual supply curves
  31. 31. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Supply Curve Price changes supply curve does not change quantity supplied changes
  32. 32. Shift in Supply Input prices Technology Number of Sellers Expected Future Prices
  33. 33. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Supply Curve
  34. 34. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Equilibrium where market price is at a level where Quantity Demanded = Quantity Supplied Supply Demand
  35. 35. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Surplus where market price is above equilibrium price Quantity Demanded < Quantity Supplied Supply Demand QD QS QS - QD = 7 - 3 = 4 Price is too high too many pizzas lower price
  36. 36. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shortage where market price is below equilibrium price Quantity Demanded > Quantity Supplied Supply Demand QD QS QS - QD = 2 - 8 = -6 Price is too low not enough pizzas raise price
  37. 37. Three Steps 1. Does the event shift supply or demand or both? 2. Which direction is the shift? 3. Diagram new equilibrium

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