4.7 markets 4.7.1market forces 4.7.2shifts in demand 4.7.3shifts in supply 4.7.4some examples...
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4.7 Markets
4.7.1 Market Forces4.7.2 Shifts in Demand4.7.3 Shifts in Supply4.7.4 Some Examples4.7.5 Summary
Application
“Growers scalded by the weak price of tea” Alan Hamilton, The Times, 25th July 2007
•UK consumers paying far less for tea than we did 30 years ago
•Price is less than 1p a cup and the real price is a quarter of what it was in 1977
•Production stands at 3.5 million tonnes from 36 countries
•UK demand starting to rise at specialist end but static for standard tea; global supply is 2% too great each year.
4.7.1 Market Forces
Market Demand - aggregation of individual demands
Market Supply - aggregation of all MC curves for firms
P
Q
S = MC
D = d
Pe
QeQd Qs
P1Equilibrium
S = MC
D = d
Pe
Qe
Consumer Surplus
Producer Surplus
4.7.2 Shifts in Supply
Change in input pricesLeft Right
Cost of technology
Government Intervention:
Subsidies
Taxes
Down
Up
Supply Shift
P
Q
S
D
S 1
P1
Pe
QeQ1Q’
Subsidies and Taxes
P
Q
S
D
S + Subsidy
S + Tax
PtPe
Ps
QsQeQt
4.7.3 Shifts in Demand
Change in incomeLeft Right
Change in price of substitutes
Change in price of complements
Change in income (inferior good)
Demand Shift
P
Q
S
Pe
Qe
DD1
P1
Q1 Q’
P
Q
S
Pe
Qe
D
D1
P1
Q1
Market for Palladium
4.7.4 Some Examples
P
Q
Market for 1980s Music
P1
Q1
S1 S2
D2D1
Q2
P2
P
Q
“Market” for Ivory
S2 S1
Q2
P2
P1
Q1
D
4.7.5 Summary
•Markets allocate resources
•Consumer and producer surplus arises at equilibrium
•Demand and supply curves shift with a number of factors