Download FB2400 Economics I

FB2400
Economics I
Topics
Demand & Supply (I): A Basic Supply & Demand Framework
For Understanding The Market
1.
Demand (Consumers)
-
2.
Supply (Producers)
-
3.
Determinants of Supply
Supply Function
Ceteris Paribus Assumption
Supply Curve
Law of Supply
Change in Supply/Quantity Supplied
Individual/Market Supply Curve
Market – Interaction of Demand & Supply
-
4.
Determinants of Demand
Demand Function
Ceteris Paribus Assumption
Demand Curve
Law of Demand
Change in Demand/Quantity Demanded
Individual/Market Demand Curve
Market Demand & Market Supply
Surplus, Shortage, and Equilibrium
Price Control – Government Intervention in Price Determination
-
Price Ceiling – Below-Equilibrium Institutional Price (Shortage)
Price Floor/Support – Above-Equilibrium Institutional Price (Surplus)
DEMAND FUNCTION:
A 3-DIMENSIONAL REPRESENTATION
Qd
12
10
Qd = f (Px , Y)
Qd = 10 – 5Px + 2Y
Y = Px = 0
Qd = 12 – 5Px
when Y = 1
Qd = 10 – 5Px
when Y = 0
P
Y=1
Y
INDIVIDUAL CONSUMER
DEMAND CURVES
MARKET
DEMAND
CURVE
P
P
P
P
HORIZONTAL
SUMMATION
...
P2
P1
Qd1
Q
Qd2
Q
QdN
Q
Q
1
2
d
d
Q Q
...
Individual 1
Individual 2
=
N
i
i 1
d
Q
 ...  Q
N
d
Individual N
+
+
+ …... +
All customers in the
MARKET
MARKET
An arrangement in which SELLERS of a good/service interact with BUYERS of the good/ service to
establish the PRICE and QUANTITY of the good/ service.
INDIVIDUAL CONSUMER
Demand Curves
P
INDIVIDUAL PRODUCER
Supply Curves
MARKET
SM
P
P
P
P
S1
……
SN
……
D1
DN
Q
DM
Q
Q
Q
DM :
Market Demand Curve – Horizontal summation of individual consumer demand curves.
SM :
Market Supply Curve – Horizontal summation of individual producer supply curves.
Q
SHIFTS IN MARKET DEMAND AND MARKET SUPPLY CURVES
CHANGE IN ANY
NON-OWN PRICE
DETERMINANTS OF
DEMAND
CHANGE IN ANY
NON-OWN PRICE
DETERMINANTS OF
SUPPLY
SHIFT IN
MARKET DEMAND
CURVE (DM)
SHIFT IN
MARKET SUPPLY
CURVE (SM)
CHANGE IN
MARKET/EQUILIBRIUM
PRICE AND QUANTITY
CHANGE IN
MARKET/EQUILIBRIUM
PRICE AND QUANTITY
P
P
SM
SM
DM
DM
Q
Q