8/19/2019 3360 Unit 02.1.5 2014-I-01

1/36

ENGR 3360U Winter 2012

Unit 2.1.5

Microeconomics: Supply an !eman

Dr. J. Michael Bennett, P. Eng., PMP,

UOIT,

Version 2014-I-01

8/19/2019 3360 Unit 02.1.5 2014-I-01

2/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%2

2.1.5 Supply an !eman

Up until 1++0( t,e R-R o an #'M

mainrame /as 0. # it cost t,em 1

million ollars to uil( t,ey c,ar*e 1.MW,at /oul you pay or a 32G memory

stic4 ne/ printer ne/ laptop

7o/ oes a company price its prouctpple an t,eir ne/ i%p,one or e8ample

8/19/2019 3360 Unit 02.1.5 2014-I-01

3/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%3

Musin*s

Supply " orces t,at ur*e people to constructsomet,in*

!eman " money /illin* to e spent y uyers or t,at t,in*

Sellers%'uyers

Monopoly " only one seller ir " ininite supply( cost 9ero

onsier a umper /,eat crop; price plummets

8/19/2019 3360 Unit 02.1.5 2014-I-01

4/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%$

Sellin* 'ur*ers in come ac4 to class

# *as prices roppe to 50 cents a litre; 5.00 a litre

7o/ to Buantiy t,is eect

8/19/2019 3360 Unit 02.1.5 2014-I-01

5/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%5

8/19/2019 3360 Unit 02.1.5 2014-I-01

6/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%6

8/19/2019 3360 Unit 02.1.5 2014-I-01

7/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%

8/19/2019 3360 Unit 02.1.5 2014-I-01

8/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%

8/19/2019 3360 Unit 02.1.5 2014-I-01

9/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%+

Supply !eman

re t,e t/o laes o a pair o scissors

@lre Mars,allA

E8plain t,e action o all sorts o mar4etsHorei*n E8c,an*e or e8ample

1N! I 0.+6US

1US I 1.0$!N

8/19/2019 3360 Unit 02.1.5 2014-I-01

10/36

Unit 2.1 " #ntrouction to Microeconomics

More Ji4ely S,ape

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%10

'

DUN

8/19/2019 3360 Unit 02.1.5 2014-I-01

11/36

Unit 2.1 " #ntrouction to Microeconomics

More !eman S,apes

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%11

'

   )   R   #   :   E

2

1

5 6

'K

K

5DUN

8/19/2019 3360 Unit 02.1.5 2014-I-01

12/36

Unit 2.1 " #ntrouction to Microeconomics

E8treme !eman Elasticity

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%12

DUN

8/19/2019 3360 Unit 02.1.5 2014-I-01

13/36

Unit 2.1 " #ntrouction to Microeconomics

E8treme !eman Elasticity

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%13

DUN

8/19/2019 3360 Unit 02.1.5 2014-I-01

14/36

Unit 2.1 " #ntrouction to Microeconomics

E8treme Supply Elasticity

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%1$

DUN

8/19/2019 3360 Unit 02.1.5 2014-I-01

15/36

Unit 2.1 " #ntrouction to Microeconomics

E8treme Supply Elasticity

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%15

DUN

8/19/2019 3360 Unit 02.1.5 2014-I-01

16/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%16

Elasticity o !eman

W,en t,e price o a *oo increases( eman

alls. 'ut not all all t,e same rate.

Hor e8ample( i t,e price o peas /ent up20( t,e eman /oul plummet. # t,e

 price o ci*arettes /ent up 20( eman

/oul ,arly c,an*e.

8/19/2019 3360 Unit 02.1.5 2014-I-01

17/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%1

!einitions o )rice Elasticity

)rice elasticity o eman I percenta*e c,an*e

in Buantity resultin* rom a 1 c,an*e in price

E8ample i t,e price o *as alls 1 an t,e emanrises 2( L I 2 @/e i*nore t,e minus si*nA

Elastic i L1

#nelastic i L1Unit elastic i LI1

i 2 1 i i i

8/19/2019 3360 Unit 02.1.5 2014-I-01

18/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%1

-serCations on Elasticity

# L1( an increase in price /ill reuce total

reCenue@ CCA

# L1( an increase in price /ill increasetotal reCenue@ CCA

# LI1( an increase in price /ill leaCe total

reCenue unaecte @ CCA

U i 2 1 # i Mi i

8/19/2019 3360 Unit 02.1.5 2014-I-01

19/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%1+

8/19/2019 3360 Unit 02.1.5 2014-I-01

20/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%20

Summary

Buantity%price%pt.

U it 2 1 # t ti t Mi i

8/19/2019 3360 Unit 02.1.5 2014-I-01

21/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%21

Reac,in* EBuilirium

May ta4e time; curCes may s,it

Hor e8ample

Hree9e in aliorniaSupply tan4s( eman is constant( price soars

'ut ,ar to increase supply @nee to plant more

trees etc.A

U it 2 1 # t ti t Mi i

8/19/2019 3360 Unit 02.1.5 2014-I-01

22/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%22

,an*es in t,e EBuiliriums

8/19/2019 3360 Unit 02.1.5 2014-I-01

23/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%23

#ncrease in !eman$

3

2

1

0$ 12 2016

#ncrease in

!eman

Duantity @1000s o ,amur*ers=ayA

   )  r   i  c  e   @   3   =   '  u  r  *   A

! !K

t eCery price(

t,e Buantityemane

increases

U it 2 1 # t ti t Mi i

8/19/2019 3360 Unit 02.1.5 2014-I-01

24/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%2$

S,its in t,e Supply urCe$

3

2

1

0$ 12 2016

!eman

Duantity @1000s o ,amur*ers=ayA

   )  r   i  c  e   @   3   =   '  u  r  *   A

SSK

Unit 2 1 #ntrouction to Microeconomics

8/19/2019 3360 Unit 02.1.5 2014-I-01

25/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%25

Suppose t,at Norman Nero eCelops a

ne/ process to ta4e a liCe co/ in at one en

an spit out ee patties at t,e ot,er 'ecomes 50 c,eaper to ma4e ,amur*ers

t,an eore

8/19/2019 3360 Unit 02.1.5 2014-I-01

26/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%26

anonical Rules on Supply !emanS

!

)

D

Duantity

   )  r   i  c  e

S

!

)

D

Duantity

   )  r   i  c  e

S

!

)

D

Duantity

   )  r   i  c  e

!K

DK

)K

!K

)K

DK

S

!

)

D

Duantity

   )  r   i  c  e

SK

)K

DK

SK

)K

DK

Unit 2 1 #ntrouction to Microeconomics

8/19/2019 3360 Unit 02.1.5 2014-I-01

27/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%2

anonical Rules on Supply !emanS

!

)

D

Duantity

   )  r   i  c  e

S

!

)

D

Duantity

   )  r   i  c  e

S

!

)

D

Duantity

   )  r   i  c  e

!K

DK

)K

!K

)K

DK

S

!

)

D

Duantity

   )  r   i  c  e

SK

)K

DK

SK

)K

DK

'ur*ers act

li4e Oia*ra

'ur*ers

cause cancer 

ost o co/s,alCes

Ma co/

oules t,e

 price

Unit 2 1 #ntrouction to Microeconomics

8/19/2019 3360 Unit 02.1.5 2014-I-01

28/36

Unit 2.1 " #ntrouction to Microeconomics

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%2

2.1.5 Supply an !eman

RM) ecies to *et tou*, on ru*s. Spens a

 unc, o an riCes t,e ,oos o. Supply

curCe s,its ac4/ars.'ut loo4P

8/19/2019 3360 Unit 02.1.5 2014-I-01

29/36

Unit 2.1 " #ntrouction to Microeconomics

)rice eilin*s

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%2+

! S

   )

   R   #   :   E

DUN

8/19/2019 3360 Unit 02.1.5 2014-I-01

30/36

Unit 2.1 " #ntrouction to Microeconomics

)rice eilin*s

S,orta*es( Bueues

7ousin* or e8ample

ommon in eman economies

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%30

Unit 2 1 " #ntrouction to Microeconomics

8/19/2019 3360 Unit 02.1.5 2014-I-01

31/36

Unit 2.1 " #ntrouction to Microeconomics

)rice Hloors

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%31

! S

   )   R   #   :   E

DUN

8/19/2019 3360 Unit 02.1.5 2014-I-01

32/36

Unit 2.1 #ntrouction to Microeconomics

Mo,air Maness

#n t,e 2n WW( mericans neee mo,air

/ool to protect pilots at ,i*, altitue. So t,e

US *oC put a ,u*e susiy in place toencoura*e t,e prouction o *oat /ool

 No/ /e ,aCe no nee o it

Susiy is still t,ereGo i*ureP

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%32

Unit 2 1 " #ntrouction to Microeconomics

8/19/2019 3360 Unit 02.1.5 2014-I-01

33/36

Unit 2.1 #ntrouction to Microeconomics

)erCersity o )rice Supports

merican e8ample

)ay ramers N-< to *ro/ cropsP

#ma*ine i # am pai N-< to teac,PGiCe it a/ay Ruin t,e Ni*erian /,eat

armer 

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%33

Unit 2 1 " #ntrouction to Microeconomics

8/19/2019 3360 Unit 02.1.5 2014-I-01

34/36

Unit 2.1 #ntrouction to Microeconomics

Morale

Jet t,e #nCisile 7an o t,e Mar4et o its

/or4 @am Smit,A

)rouce /,at you o est Note t,e connection /it, international trae

HREE

8/19/2019 3360 Unit 02.1.5 2014-I-01

35/36

Unit 2.1 #ntrouction to Microeconomics

S,oul Eie Greenspan o ,is /ill

201$%#%01 !r. &.M. 'ennett( ).En*.( )M) ENGR 3360U En* Eco2.1%35

8/19/2019 3360 Unit 02.1.5 2014-I-01

36/36