chapter 3 market demand and supply. key concepts demand direct demand utility derived demand demand...

31
Chapter 3 Market Chapter 3 Market Demand Demand and Supply and Supply

Post on 21-Dec-2015

230 views

Category:

Documents


1 download

TRANSCRIPT

Page 1: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

Chapter 3 Market Chapter 3 Market DemandDemand

and Supply and Supply

Chapter 3 Market Chapter 3 Market DemandDemand

and Supply and Supply

Page 2: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

KEY CONCEPTS• demand• direct demand• utility• derived demand• demand function• demand curve• change in the

quantity demanded

• shift in demand• Supply

• supply function• supply curve• change in the

quantity supplied• shift in supply• equilibrium• market equilibrium

price• surplus• shortage• comparative statics

analysis

Page 3: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

OVERVIEW

• Basis for Demand• Market Demand Function• Demand Curve • Basis For Supply• Market Supply Function• Supply Curve Market Equilibrium

Page 4: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

一 . Basis for Demand• 1.Direct Demand versus derived

demand– Demand is the quantity customers are

willing to buy under current market conditions.

– Direct demand is demand for consumption.

Page 5: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

**Derived Demand– Derived demand is input demand.– Firms demand inputs that can be

profitably employed.

Page 6: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

2. Market Demand Function

• 1.Determinants of Demand– Demand is determined by price, prices

of other goods, income, and so on.

• 2.Industry Demand Versus Firm Demand– Industry demand is subject to general

economic conditions.– Firm demand is determined by

economic conditions and competition.

Page 7: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

3.Demand Curve

• Demand Curve Determination • The price-quantity demanded

relation.• All non-price variables are held

constant.

Page 8: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded
Page 9: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

4.Relation Between the Demand Curve and Demand

Function

• Move along demand curve when price changes.

• Shift to another demand curve when non-price variables change.

Page 10: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded
Page 11: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

A summary of what can cause an increase in demand

a.Favorable change in consumer tastes.b.Increase in the number of buyers.c.Rising income if product is a normal good.d.Falling incomes if product is an inferior

good.e.Increase in the price of a substitute good.f. Decrease in the price of a complementary

good.g.Consumers expect higher prices in the

future.

Page 12: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

二 .Basis For Supply• 1.How Output Prices Affect Supply

– Firms offer supply to make profits.•Higher prices boost the quantity supplied.•Lower prices cut the quantity supplied.

• 2.Other Factors That Influence Supply– Everything that affects marginal

production costs affects supply.•If MC falls, supply rises.•If MC rises, supply falls.

Page 13: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

2.Market Supply Function

• Determinants of Supply– Supply is determined by price,

prices of other goods, technology, and so on.

Page 14: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

The determinates of supply = supply shifters

1.Resource prices2.Price of related goods3. Technology4.Number of sellers5.Taxes and subsidies6.Expected future prices7.Nature, ‘random shocks’ and

other unpredictable events

Page 15: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

• Industry Supply Versus Firm Supply– Firm supply is determined by

economic conditions and competition.

– Industry supply is the horizontal sum of firm supply.

Page 16: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

3.Supply Curve• Supply Curve Determination• The price-quantity supplied

relation.• All non-price variables are held

constant.

Page 17: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded
Page 18: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

4.Relation Between Supply Curve and Supply Function

– Move along supply curve when price changes.

– Shift to another curve when non-price variables change.

Page 19: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded
Page 20: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

What effect will each of the following have on the supply of

product B?

a.A technological advance in the methods of producing B.

b.A decline in the number of firms in industry B.c.An increase in the price of resources required

in the production of B.d.The expectation that the equilibrium price of

B will be lower in the future than it is currently.

e.A decline in the price of product A, a good whose production requires substantially the same techniques as does the production of B.

f. The levying of a specific sales tax upon B.g.The granting of a 50-cent per unit subsidy for

each unit of B produced.

Page 21: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

三 .Market Equilibrium

• 1. Surplus and Shortage– Surplus is excess supply.– Shortage is excess demand.

Page 22: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded
Page 23: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

2.Comparative Statics: Changing Demand

– Equilibrium changes with demand shifts.

– Comparative Statics: Changing Supply•Equilibrium changes with supply shifts.

– Comparative Statics: Changing Demand and Supply

Page 24: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded
Page 25: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

Effects of changes in demand and supply

Change in D

Change in S

Effect on Pe

Effect on Qe

Increase Fixed

Decrease Fixed

Fixed Increase

Fixed Decrease

Decrease Increase Uncertain

Increase Decrease Uncertain

Increase Increase Uncertain

Decrease Decrease Uncertain

Page 26: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

Three steps for analyzing changes in

equilibrium

• 1. To decide whether the event shifts supply or demand curve (or perhaps both).

• 2. To decide in which direction the curve shifts.

• 3. To use the supply- demand diagram to see how the shift changes the equilibrium price and quantity.

Page 27: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

The effects of the following changes have on Pe and Qe:

• A. Supply decreases and demand is constant.• B. Demand decreases and supply is constant.• C. Demand increases and supply increases.• D. Supply increases and demand decreases.• E. Demand decreases and supply decreases.• F. Supply decreases and demand increases

Page 28: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

• “ Prices are the automatic regulator that tends to keep production and consumption in line with each other.” Explain.

Page 29: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

• Advanced analysis: Assume that the demand for a commodity is represented by the equation P = 10 ‑ .2Qd and supply by the equation P = 2 + .2Qs, where Qd and Qs are quantity demanded and quantity supplied, respectively, and P is price. Using the equilibrium condition Qs = Qd, solve the equations to determine equilibrium price. Now determine equilibrium quantity. Graph the two equations to substantiate your answers.

Page 30: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

206510510

or

206550550

:quantity mequilibriu determine toor either in 6 substitueNow

6 and 1060

510550

condition mequilibriu into and Substitute

510 and 105 Therefore

22 isSupply

550505 Therefore

210 is Demand

PQ

PQ

Q QP

PP

PP

QQQQ

PQQP

Q sP

PQP

QP

s

d

sd

dssd

ss

d

Page 31: Chapter 3 Market Demand and Supply. KEY CONCEPTS demand direct demand utility derived demand demand function demand curve change in the quantity demanded

• Discuss the economic aspects of ticket scalping, specifying the gainers and losers