Download Macro

MICROECONOMICS
LAW OF SUPPLY AND DEMAND
PRINCIPLES
DEMAND COMES FIRST.
SUPPLY ADJUSTS TO DEMAND.
PRODUCTION REQUIRES TIME.
EQUILIBRIUM IS A THEORETICAL CONSTRUCTION.
THE MARKET DETERMINES PRICE AND PRODUCTION.
LAW OF SUPPLY AND DEMAND
SUPPLY ADJUSTS TO DEMAND:
THE ECONOMY IS
DEMAND PULL.
Maslow’s Hierarchy of Needs
Self-actualization
personal growth and fulfilment
Esteem needs
achievement, status, responsibility, reputation
Belongingness and Love needs
family, affection, relationships, work group, etc.
Safety needs
protection, security, order, law, limits, stability, etc.
Biological and Physiological needs
basic life needs - air, food, drink, shelter, warmth, sex, sleep, etc.
MATERIAL
LEVEL
THE DEMAND CURVE
GIVEN THE INCOME,
IF PRICE RISES THEN QUANTITY
DEMANDED FALLS.
P
THEREFORE,
THE DEMAND IS A RELATION
CONNECTING PRICE AND
QUANTITY WITH
NEGATIVE SLOPE
DEMAND
Q
WHAT CAN SHIFT THE DEMAND CURVE?
P
THE EXOGENOUS
VARIABLES
D1
D2
D
WHAT CAN CHANGE DEMAND CURVE SLOPE?
P
RICH COUNTRY
ELA STIC
INPOOR
ELACOUNTRY
STIC
Q
Maslow’s Hierarchy of Needs
Self-actualization
personal growth and fulfilment
Esteem needs
achievement, status, responsibility, reputation
Belongingness and Love needs
family, affection, relationships, work group, etc.
Safety needs
protection, security, order, law, limits, stability, etc.
Biological and Physiological needs
basic life needs - air, food, drink, shelter, warmth, sex, sleep, etc.
ELASTICITIES
SUPPLY ADJUSTS TO DEMAND:
1. PROPOSING A PRICE (MARKETING).
WHICH DEPENDS ON COSTS, DEMAND
(INVENTORIES) AND COMPETITION.
2. DECIDING PRODUCTION.
WHICH DEPENDS ON PROFITS, DEMAND
(INVENTORIES) AND COMPETITION.
SUPPLY ADJUSTS TO DEMAND:
WHEN DEMAND RISES (INVENTORIES FALL)
THEN
PRICE RISES AND PRODUCTION GROWS.
SO,
P
THE SUPPLY CURVE IS A
POSITIVE
SUPPLY
RELATION BETWEEN
PRICE AND PRODUCTION.
THE SUPPLY CURVE
IS A THEORETICAL
CONSTRUCTION.
Q
WHAT CAN SHIFT THE SUPPLY CURVE?
THE COST OF
PRODUCTION.
WHAT CAN CHANGE SUPPLY CURVE SLOPE?
P
CAPITAL,
MENOS
LESS CAPITAL
INELASTIC
PERECÍVEL
MAIS
PERISHABLES
MAIS CAPITAL,
 MORE
CAPITAL
ELASTIC
MENOS
PERECÍVEL
 NON-PERISHABLES
Y
WHAT CAN CHANGE SUPPLY CURVE SLOPE?
P
MENOSCAPITAL
CAPITAL,
LESS
AGRICULTURE
MAIS PERECÍVEL
PERISHABLES
MAIS CAPITAL,
MORE
CAPITAL
NONMENOS
PERECÍVEL
INDUSTRY
PERISHABLES
Y
WHAT CAN CHANGE SUPPLY CURVE SLOPE?
P
MENOSCAPITAL
CAPITAL,
LESS
POOR
COUNTRY
MAIS PERECÍVEL
PERISHABLES
MAIS CAPITAL,
MORE
CAPITAL
MENOS
PERECÍVEL
RICH NONCOUNTRY
PERISHABLES
Y
SUPPLY AND DEMAND: THE MARKET
BRAZILIAN CEMENT
MARKET
LAW OF SUPPLY AND DEMAND
THEORETICAL EQUILIBRIUM
LEVELS OF PRODUCTION
AND PRICE DEPEND ON:
1. BUYERS AND SELLERS
INTERACTION
2. DEMAND AND
SUPPLY CURVES SHIFTS
STEMMING FROM EXOGENOUS
FACTORS
AND DECISIONS OF
ECONOMIC POLICY
GOVERNMENT INTERVENTION
WHAT SUPPORTS THE PRICE LEVEL IS THE DEMAND
P
P0
PMIN
Q0
Q
ECONOMETRICS
CASE STUDY:
THE BRAZILIAN CEMENT MARKET
2SLS DISTRIBUTED LAGS METHOD
FIRST STAGE
GENERAL EQUATION OF THE REDUCED MODEL
Yit = Ai0 + Ai1(L)Wt + Ai2(L)Ft + it
2SLS METHOD - FIRST STAGE
ESTIMATED REDUCED MODEL
CONSUMPTION:
Dt = 9.896 - 0.312 Wt + 30.234 Ft-1 - 2.958 D1
(5.17)
(-2.91)
R2 = 0.98
(13.07)
DW = 1.90
(-3.76)
F (3,12) = 162.48
PRICE:
Pt = 16.791 + 1.102 Wt-2 + 11.967 Ft-1
(6.33)
(6.04)
R2 = 0.87
(2.32)
DW = 2.24
F (2,12) = 40.64
PRODUCTION:
Qt = 9.362 - 0.304 Wt + 31.048 Ft-1 - 2.960 D1
(4.69)
R2 = 0.98
(-2.72)
(12.87)
DW = 1.94
(-3.60)
F (3,12) = 158.10
2SLS METHOD - FIRST STAGE
ESTIMATED REDUCED EQUILIBRIUM MODEL
consumption: Dt* = 9.896 - 0.312 Wt + 30.234 Ft
price:
Pt* = 16.791 + 1.102 Wt + 11.967 Ft
production:
Qt* = 9.362 - 0.304 Wt + 31.048 Ft
Pt = -1.427 + 1.001 Pt*
SD: (8.51) (0.21)
R2 = 0.64
DW = 1.51
F (1,13) = 22.65
2SLS METHOD – SECOND STAGE
THE BRAZILIAN CEMENT MARKET
DEMAND CURVE:
D*t = 14.778 - 0.288 P*t + 33.735 Ft - 2.979 D1
SUPPLY CURVE:
Q*t = - 33.868 + 2.579 P*t - 3.140 Wt - 2.982 D1
SUPPLIERS PRICE:
P*t = 32.776 + 5.008 Wt - 51.899 E*t - 20.858 D1
SUPPLIERS PRODUCTION DECISION:
Q*t = - 25.515 + 2.428 M*t - 9.351 E*t - 6.740 D1
BRAZILIAN
CEMENT MARKET
ANALYSIS
PRICE ELASTICITY
OF DEMAND
INVESTMENT
ELASTICITY OF
PRODUCTION
BRAZILIAN CEMENT MARKET
ANALYSIS
REDUCED MODEL – CONTROL PANEL
P*t = CONSTANT + 1.098 Wt + 12.050 Ft
Q*t = CONSTANT + - 0.308 Wt + 31.083 Ft
EXAMPLE: SOURCES OF VARIATIONS
P*t =
1.098 Wt + 12.050 Ft - INFLATION
Q*t = - 0.308 Wt + 31.083 Ft - GROWTH
A MATHEMATICAL
DEMONSTRATION
OF WHY
NEOCLASSICAL
THEORY IS WRONG
THE IMPOSSIBLE
NEOCLASSICAL SUPPLY CURVE
THE PROFIT MAXIMIZATION EQUATION
𝒅𝑷
𝒅𝑪
𝑷 +
𝐱𝑸=
𝒅𝑸
𝒅𝑸
ASSUMPTIONS:
 PRODUCTION CAPACITY IS “GIVEN”
 dP/dQ = ZERO
THEREFORE P = dC/dQ
IS SAID TO BE A SUPPLY CURVE
HOWEVER...
THE IMPOSSIBLE
NEOCLASSICAL SUPPLY CURVE
WHEN DEMAND SHIFTS TO THE RIGHT
PROFITS RISE AND NEW INVESTMENT
EXPANDS PRODUCTION CAPACITY
AND THEN THE “SUPPLY CURVE” IS
SHIFTED TO THE RIGHT.
THE MATTER OF
COMPETITION
DEMAND PRICE ELASTICITY e
𝑑𝐷
𝑃
𝑒 =
𝑥
𝑑𝑃 𝐷
INDIVIDUAL FIRM
DEMAND PRICE ELASTICITY ei
𝑑𝐷 𝑃 𝐷
𝑒 =
𝑥 𝑥 𝑖
𝑑𝑃 𝐷 𝐷
𝑖
1
𝑒 = 𝑒
𝑆𝐻𝐴𝑅𝐸
𝑖
BRAZILIAN CEMENT MARKET
MONOPOLY PRICE MP versus ACTUAL PRICE P
70
60
50
40
30
P
20
70
72
74
76
78
MP
80
82
84
86
BRAZILIAN CEMENT MARKET
OLIGOPOLY DEGREE Z versus PROFIT MARGIN M
BRAZILIAN CEMENT MARKET
DP(W)t = - 10.68 + 80.5/INV(W)t
(-10.0) (10.7)
THE PHILIPS CURVE
R2 = 0.90 DW = 1.58
F (1,12) = 114.2
THE END
OF THE NEOCLASSICAL
DOMINANCE?
TO BE CONTINUED.