* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Market Demand Schedule for DVDs
Survey
Document related concepts
Transcript
CHAPTER 3 Demand, Supply and Market Equilibrium 1 Markets An institution or mechanism that brings together buyers and sellers of particular goods and services. This chapter focuses on competitive markets. What is a competitive market? 2 Demand A schedule or a curve that shows the various amounts consumers are willing and able to purchase at each of a series of possible prices, during. some specified period of time 3 Demand Schedule for DVDs Price Quantity (dollars/dvd) (millions of dvds/week) A 1 9 B 2 6 C 3 4 D 4 3 E 5 2 4 Law of Demand Ceteris paribus, as price falls, the quantity demanded rises (& vice-versa) Explanation of law of demand: diminishing marginal utility 2. income effect 3. substitution effect 1. 5 Individual versus Market demand The market demand us the horizontal sum of individual demand curve. 6 Market Demand Schedule for DVDs Price (dollars/dvd) A B C D E 7 1 2 3 4 5 Quantity demanded (millions/week) Buyer 1 Buyer 2 Buyer 3 8 5 3 2 1 7 5 4 3 2 9 6 4 3 2 Total quantity demanded /week 24 16 11 8 5 Changes in Demand A change in one or more of the determinants of demand results in a shift in the demand curve 8 Changes in Demand Changes in any of these determinants will cause a change in demand: tastes (preferences) number of buyers income prices of related goods expectations let’s examine these more closely… 9 Changes in Demand Changes in Tastes (preferences) positive change shifts D curve right more will be demanded at each price PA D D′ QA 10 Changes in Demand Changes in Number of Buyers: decrease will shift curve left PA D’ D QA 11 Changes in Demand Changes in Money Incomes: when income increases demand for NORMAL goods increases demand for INFERIOR goods decreases 12 Changes in Demand Changes in Prices of Related Goods: when two products are SUBSTITUTES, price of one & demand for the other move in the same direction when two products are COMPLEMENTS, price of one & demand for the other move in opposite directions when products are unrelatedno effect 13 Changes in Demand Changes in Consumer Expectations: about future prices or incomes 14 Change in Quantity Demanded when price of the product changes, there is a movement along the demand curve…this is called a change in quantity demanded. when any other determinant of demand changes, there is a shift in the demand curve… this is called a change in demand. 15 Supply A schedule or a curve showing the amounts that producers are willing and able to make available for sale at each of a series of possible prices, during some specified period of time. 16 Supply Schedule for DVDs Price Quantity (dollars/dvd) (millions of dvds/week) A 1 0 B 2 5 C 3 10 D 4 13 E 5 16 17 Law of Supply Ceteris paribus, as price rises, the quantity supplied rises (& vice-versa) why? price is revenue to suppliers higher price necessary to induce higher supply, to cover higher costs of production 18 Determinants of Supply Changes in any of these determinants will cause the supply curve to shift: factor prices technology taxes & subsidies prices of other goods producer expectations number of sellers let’s examine these more closely… 19 Changes in Quantity Supplied A change in quantity supplied is a movement from one point to another on a fixed supply curve A change in supply is a shift of the entire curve S price Increase in QS NOT supply! Decrease in QS quantity 20 Market Equilibrium Equilibrium price will be established where the supply decisions of producers and the demand decisions of buyers are mutually consistent 21 Market Supply & Demand for DVDs Price (dollars/dvd) 1 2 3 4 5 22 Quantity demanded (millions of dvds/week) 24 16 11 8 5 Quantity supplied (millions of dvds/week) 0 5 10 13 16 Shortage (-) or surplus (+) (millions of dvds/week) Equilibrium price & quantity Equilibrium price (market clearing price) is the price in a competitive market at which the quantity demanded is equal to the quantity supplied. There is neither a shortage nor a surplus at this price. Equilibrium quantity is the quantity demanded & supplied at the equilibrium price in a competitive market. 23 What is the rationing function of prices? 24 Efficient allocation Efficient allocation of society’s resources occur in a competitive market at equilibrium. Efficient allocation means: Productive efficiency 2. Allocative efficiency 1. 25 Complex Cases when both supply and demand change, the effect is a combination of the individual effects if both demand and supply shift, one of either price or quantity cannot be predicted–the result is indeterminate 26 Complex Cases Change in Change in Effect on supply demand equilibrium price Table 3-3 Effect on equilibrium quantity Increase Decrease Decrease Indeterminate Decrease Increase Increase Indeterminate Increase Increase Indeterminate Increase Decrease Decrease Indeterminate Decrease 27 3.4 Applications: Government Set Prices Price Ceilings: A legally established maximum price for a good or service. 28 Price Ceilings and Shortages Rationing Problem Black Markets 29 Government Set Prices: Price Floors Price Floor: A legally established price above an equilibrium price 30 Price Floors and Surplus Additional consequences • Distort resource allocation • Cause shortages or surpluses • Produce negative side effects 31 Mathematics of Market Equilibrium P = 100 - 0.5 Qd P = 5 + 0.5 Qs Calculate the equilibrium quantity & price Step 1: Set the right hand side of both equations to equal on another & solve for Q* (Q*= Qd = Qs in equilibrium) Step 2: Substitute Q* into either equation & solve for P* (P*=P in equilibrium) 32 Homework questions Study questions are end of chapter: 3,6,7, 8, 9,13, 14, 17 The key will be posted on my website. 33