DEMAND (D), SUPPLY (S) & EQUILIBRIUM...
-
Upload
truongphuc -
Category
Documents
-
view
212 -
download
0
Transcript of DEMAND (D), SUPPLY (S) & EQUILIBRIUM...
Agenda
1. Demand & supply - components of each
market
2. Determinants of demand and supply
3. Law of demand and supply
4. Ceteris paribus
5. Equilibrium and market imbalance
D, S & E - keywords
demand (D) supply (S)
law of D & Sdeterminants of D & S
ceteris paribusshifts in D & S
equilibriummarket imbalancesurplus of D over Ssurplus of S over D
D, S & E – todays questions
What are the demand and supply?
How does the law of demand and supply work?
When the market is in equilibrium and when in imbalance?
Is market equilibrium the best option for market players?
Why do we buy and consume so many goods and services?
• First step is consumer’s desire.
• Of course, the producers won’t give you their goods just
because you want to satisfy your desires. So, the second
step is the ability to pay. Prices and incomes are just as
relevant to the consumption decision as are basic desires
and preferences.
Economists focus on the demand for goods and services.
Demand entails the willingness and ability to pay for goods
and services.
What are the demand and supply?– micro in theory
How much of certain good we are willing to buy at any particular
price?
• Demand for specific product is determined by: tastes (desire
for this and other goods), incomes (of the consumer),
expectations (for income, prices, tastes), other goods (their
availability and prices).
• Rather than try to explain all these forces at once, however,
let us focus on the relationship between the price of the
good and the amount of it we are willing to buy.
This simplification is common to economic analysis. If we want
to focus on on the relathionship price – consumption, we ignore
everything else. This assumption is typically referred to by it’s
Latin term, ceteris paribus.
What are the demand and supply?– micro in theory
How do we use ceteris paribus in the definition of demand?
• Demand refers to a person’s readiness to buy a good at some
price(s). Is it thus two-dimensional relationship linking price
and quantity demanded.
• But that relationship depends on determinants of demand
(f.e. tastes). If any of these determinants of demand were to
change, the relationship between quantity and price would
change as well .
By assuming „nothing else changing” (ceteris paribus), we
simplify the problem greatly.
What are the demand and supply?– micro in theory
What are the demand and supply?– micro in theory
Why do we sell many goods and services?
• For money, for fun sometimes
Economists focus on the supply for goods and services.
Supply entails the willingness and ability to supply goods and
services.
What are the demand and supply?– micro in theory
How much of certain good we are willing to sell at any particular
price?
• Supply is determined by: technology, factor costs, taxes,
expectations, number of sellers, other goods
• Rather than try to explain all these forces at once, however, let
us focus on the relationship between the price of the good and
the amount of it we are willing to sell.
Law of demand and supply– micro in theory
Demand schedule - a table that shows the quantity
demanded at each price.
Example: gasoline market
Price (gallon) Quantity demanded (millions of
gallons)
$1.00 800
$1.20 700
$1.40 600
$1.60 550
$1.80 500
$2.00 460
$2.20 420
https://www.khanacademy.org
Law of demand and supply– micro in theory
Demand curve - a graph that shows the quantity
demanded at each price.
Example: gasoline market
https://www.khanacademy.org
Law of demand and supply– micro in theory
The downward slope of the demand curve again
illustrates the law of demand — the inverse relationship
between prices and quantity demanded.
The law of demand assumes that all other variables that
affect demand are held constant.
Remember
Demand is not the same as quantity demanded.
When economists talk about demand, they mean the
relationship between a range of prices and the quantities
demanded at those prices, as illustrated by a demand
curve or a demand schedule.
When economists talk about quantity demanded, they
mean only a certain point on the demand curve or one
quantity on the demand schedule. In short, demand
refers to the curve, and quantity demanded refers to a
specific point on the curve.
Demand curves can shift– micro in theory
Changes in factors like average income and preferences can
cause an entire demand curve to shift right or left. This
causes a higher or lower quantity to be demanded at a given
price. (no ceteris paribus)
Law of demand and supply– micro in theory
Supply schedule - a table that shows the quantity
supplied at each price.
Example: gasoline market
https://www.khanacademy.org
Price (gallon) Quantity supplied (millions of gallons)
$1.00 500
$1.20 550
$1.40 600
$1.60 640
$1.80 680
$2.00 700
$2.20 720
Law of demand and supply– micro in theory
Supply curve - a graph that shows the quantity supplied
at each price.
Example: gasoline market
https://www.khanacademy.org
Law of demand and supply– micro in theory
Economists call this positive relationship between price
and quantity supplied—that a higher price leads to a
higher quantity supplied and a lower price leads to a lower
quantity supplied — the law of supply.
The law of supply assumes that all other variables that
affect supply are held constant.
Remember
Supply is not the same as quantity supplied.
When economists refer to supply, they mean the
relationship between a range of prices and the quantities
supplied at those prices—a relationship that can be
illustrated with a supply curve or a supply schedule.
When economists refer to quantity supplied, they mean
only a certain point on the supply curve, or one quantity
on the supply schedule. In short, supply refers to the
curve, and quantity supplied refers to a specific point on
the curve.
Supply curves can shift– micro in theory
Changes in production cost and related factors can cause an
entire supply curve to shift right or left. This causes a higher
or lower quantity to be supplied at a given price. (no ceteris
paribus)