Chapter 4 Introduction to the Demand and Supply Framework.
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Transcript of Chapter 4 Introduction to the Demand and Supply Framework.
![Page 1: Chapter 4 Introduction to the Demand and Supply Framework.](https://reader036.fdocuments.us/reader036/viewer/2022081511/56649d485503460f94a23cb3/html5/thumbnails/1.jpg)
Chapter 4
Introduction to the Demand and Supply Framework
![Page 2: Chapter 4 Introduction to the Demand and Supply Framework.](https://reader036.fdocuments.us/reader036/viewer/2022081511/56649d485503460f94a23cb3/html5/thumbnails/2.jpg)
Supply (cont’d)
• Supply Schedule—a table that shows the quantity firms are willing and able to supply at various prices.
• Supply Curve—a graph that shows the quantities that sellers are willing and able to supply at different prices.
![Page 3: Chapter 4 Introduction to the Demand and Supply Framework.](https://reader036.fdocuments.us/reader036/viewer/2022081511/56649d485503460f94a23cb3/html5/thumbnails/3.jpg)
Theory in Action…• http://www.economist.com/world/na/displaystory.cfm?
story_id=8570280 Dreams of Californication Applied Topics: Supply and demand model, changes in market equilibrium
• The article examines the effects of migration of Californians to other parts of the U.S.
• Questions:
• Which determinant of demand identified in the article has changed in the housing market in Salt Lake City and how has it affected the demand curve for housing?
• Does it appear that there has been an increase in supply or an increase in quantity of new houses supplied in Salt Lake City between 2005 and 2006?
![Page 4: Chapter 4 Introduction to the Demand and Supply Framework.](https://reader036.fdocuments.us/reader036/viewer/2022081511/56649d485503460f94a23cb3/html5/thumbnails/4.jpg)
Changes in Demand or Supply
• Once an equilibrium price is established, it won’t change unless surrounding (supply and demand) conditions change.
• What happens if Demand decreases
Demand increases
Supply increases
![Page 5: Chapter 4 Introduction to the Demand and Supply Framework.](https://reader036.fdocuments.us/reader036/viewer/2022081511/56649d485503460f94a23cb3/html5/thumbnails/5.jpg)
Fill in the Chart….Changes in Demand or Supply
EquilibriumPrice
EquilibriumQuantity
Demand Increases
Demand Decreases
Supply Increases
SupplyDecreases
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Fill in the Chart….Changes in Demand or Supply
EquilibriumPrice
EquilibriumQuantity
Demand IncreasesRises Rises
Demand DecreasesFalls Falls
Supply Increases Falls Rises
SupplyDecreases Rises Falls
![Page 7: Chapter 4 Introduction to the Demand and Supply Framework.](https://reader036.fdocuments.us/reader036/viewer/2022081511/56649d485503460f94a23cb3/html5/thumbnails/7.jpg)
Changes in Demand and Supply
• When both curves shift, the resulting changes in equilibrium price and quantity are harder to predict. Depends on the direction and magnitude of the
shifts Draw it…
• Demand increase > Supply decrease
• Demand decrease < Supply increase
• Demand increase = Supply increase
![Page 8: Chapter 4 Introduction to the Demand and Supply Framework.](https://reader036.fdocuments.us/reader036/viewer/2022081511/56649d485503460f94a23cb3/html5/thumbnails/8.jpg)
Limits of Supply and Demand Analysis
• Thin Markets Buyers and sellers are not in close contact. Very few buyers or sellers
• Output of Some Markets Cannot Be Measured Education
• Fluctuating Market Conditions Using a static model (point in time) to analyze
dynamic markets (over time)
![Page 9: Chapter 4 Introduction to the Demand and Supply Framework.](https://reader036.fdocuments.us/reader036/viewer/2022081511/56649d485503460f94a23cb3/html5/thumbnails/9.jpg)
Chapter 4 Homework
• Questions 4, 8, 10, 16, and 18
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Chapter 5
Elasticity
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Defining a Market
• Allows buyers and sellers to exchange goods and services
• Market edges defined by: Geography
• What kind of market is Wendy’s in? Local, national, international?
Product Characteristics• Size, color, flavor, price…
Are McDonalds and Longhorn Steakhouse in the same market?
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Elasticity
• Response of one variable to a change in another variable
• Price elasticity of demand Measure how sensitive consumers are to price
changes
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P
QEd
%
%
Elasticity = percentage change in quantity demanded divided by the percentage change in price
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Midpoint Formula
2
2
21
21
21
21
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