10/22/2014CRC Economics1. 10/22/2014CRC Economics2 What did you study last time? Chapter 4 The...
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Transcript of 10/22/2014CRC Economics1. 10/22/2014CRC Economics2 What did you study last time? Chapter 4 The...
04/11/23 CRC Economics 1
04/11/23 CRC Economics 2
What did you study last time?
Chapter 4The Market Forces of Demand &
Supply
III. Market situations
04/11/23 CRC Economics 3
What do you study now?
Chapter 4The Market Forces of Demand & Supply
IV. Effects of changes in demand and/or supply on markets
04/11/23 CRC Economics 4
Do you know …
what causes shifts (changes) in demand and supply?
what happens in a market when only demand shifts/changes?
what happens in a market when only supply shifts/changes?
04/11/23 CRC Economics 5
Do you know …
what happens in a market when both demand and supply shift/change?
how to analyze changes in equilibrium?
04/11/23 CRC Economics 6
1. What cause shifts (changes) in demand and supply?
Shifts (Changes) in the
demand curve supply curve
are caused by changes in non-price factors (determinants):
income weather
prices of related goods prices of resources
tastes technology
expectations expectations
number of buyers number of sellers
04/11/23 CRC Economics 7
2a. What happens in a market when only demand shifts/changes?
8
4
Qx (units)
Px ($)
O 1
1
S
4
3
2
D
What happens if demand increases by 4 units at each price?
EPe
Qe
D’
E’
6
Q’e
P’e
2
Suppose that a market is originally at equilibrium.
An increase in demand increases both price and quantity in the market.
04/11/23 CRC Economics 8
2b. What happens in a market when only demand shifts/changes?
8
4
Qx (units)
Px ($)
O 1
1
S
4
3
2
D
EPe
Qe
6
D’’
E’’P’’e
2
Q’’e
What happens if demand decreases by 4 units at each price?
Suppose that a market is originally at equilibrium.
A decrease in demand decreases both price and quantity in the market.
04/11/23 CRC Economics 9
3a. What happens in a market when only supply shifts/changes?
8
4
Qx (units)
Px ($)
O 1
1
S
4
3
2
D
EPe
Qe
S’
E’
6
Q’e
P’e
2
What happens if supply increases by 4 units at each price?
Suppose that a market is originally at equilibrium.
An increase in supply decreases price and increases quantity.
04/11/23 CRC Economics 10
3b. What happens in a market when only supply shifts/changes?
8
4
Qx (units)
Px ($)
O 1
1
S
4
3
2
D
EPe
Qe
6
S’’
E’’
P’’e
2
Q’’e
What happens if supply decreases by 4 units at each price?
Suppose that a market is originally at equilibrium.
A decrease in supply increases price and decreases quantity.
04/11/23 CRC Economics 11
4. Effects of changes in D or S on the market—Summary table 1
is unchanged(stays the same) increases
is unchanged(stays the same)
increases
P is the sameQ is the same
P increasesQ increases
P decreasesQ increases
decreases
P increasesQ decreases
decreases P decreasesQ decreases
and supply
If Demand
04/11/23 CRC Economics 12
5a. What happens in a market if both D & S increase?
is unchanged(stays the same) increases
is unchanged(stays the same)
increases
P is the sameQ is the same
P increasesQ increases
P decreasesQ increases
and supply
If Demand
P is ambiguousQ increases
04/11/23 CRC Economics 13
5b. What happens in a market if both D & S decrease?
is unchanged(stays the same)
is unchanged(stays the same)
P is the sameQ is the same
decreases
P increasesQ decreases
decreases P decreasesQ decreases
and supply
If Demand
P is ambiguousQ decreases
04/11/23 CRC Economics 14
5c. What happens in a market if D increases & S decreases?
is unchanged(stays the same)
is unchanged(stays the same)
increases
P is the sameQ is the same
P increasesQ increases
decreases
P increasesQ decreases
and supply
If Demand
P increasesQ is ambiguous
04/11/23 CRC Economics 15
5d. What happens in a market if D decreases & S increases?
is unchanged(stays the same) increases
is unchanged(stays the same)
P is the sameQ is the same
P decreasesQ increases
decreases P decreasesQ decreases
and supply
If Demand
P decreasesQ is ambiguous
04/11/23 CRC Economics 16
5e. Effects of changes in D and/or S on the market—Summary table 2
is unchanged(stays the same) increases
is unchanged(stays the same)
increases
P is the sameQ is the same
P increasesQ increases
P decreasesQ increases
decreases
P increasesQ decreases
decreases P decreasesQ decreases
and supply
If Demand
P is ambiguousQ increases
P increasesQ is ambiguous
P decreasesQ ambiguous
P is ambiguousQ decreases
04/11/23 CRC Economics 17
5f. What happens in a market if both D & S shift/change?
If
D > S
then
D dominates the market, i.e. the market isaffected by the change in demand only.
D = S No side dominates the market, so either Pe or Qe would be the same as the original.
D < S
To remove the “ambiguity” in price or quantity, we needmore information about the magnitude of the changes.
S dominates the market, i.e. the market isaffected by the change in supply only.
04/11/23 CRC Economics 18
6. How to analyze changes in equilibrium?
By following the steps below: i. Determine the market in
question;ii. Determine the event;iii. Decide whether the event
shifts/changes the demand curve or the supply curve (or both);
04/11/23 CRC Economics 19
6. How to analyze changes in equilibrium?
iv. Decide which direction the curve(s) shift(s);
v. Use the demand-supply diagram to see how the shift(s) change(s) the equilibrium.
04/11/23 CRC Economics 20
Now you know …
what causes shifts (changes) in demand and supply.
what happens in a market when only demand shifts/changes.
what happens in a market when only supply shifts/changes.
04/11/23 CRC Economics 21
Now you know …
what happens in a market when both demand and supply shift/change.
how to analyze changes in equilibrium.
04/11/23 CRC Economics 22
Summary
One has to be able to determine the market’s original situation (before the changes) and the market’s new situation (after the changes).
Changes in market equilibrium are caused by changes in the other factors that affect (shift) demand and/or supply curves.
04/11/23 CRC Economics 23
Summary
Supply & demand together determine the prices of G&S.
In market economies, prices are the signals that guide the allocation of resources.
04/11/23 CRC Economics 24
What did you study?
Chapter 4The Market Forces of Demand & Supply
IntroductionI. Demand (D)II. Supply (S)III. Market situationsIV. Effects of changes in demand & supply on
markets
04/11/23 CRC Economics 25
What will you study next?
Chapter 5Elasticity & Applications
I. Price elasticity of demandII. Income elasticity of demandIII. Cross-price elasticity of demandIV. Price elasticity of supplyV. Applications
04/11/23 CRC Economics 26