SAYRE | MORRIS Seventh Edition Demand and Supply: an Elaboration CHAPTER 3 3-1© 2012 McGraw-Hill...
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Transcript of SAYRE | MORRIS Seventh Edition Demand and Supply: an Elaboration CHAPTER 3 3-1© 2012 McGraw-Hill...
SAYRE | MORRIS Seventh Edition
Demand and Supply: an Elaboration
CHAPTER 3
3-1© 2012 McGraw-Hill Ryerson Limited
Determinants of Supply and Demand
3-2© 2012 McGraw-Hill Ryerson Limited
LO1
Determinants of Demand Determinants of SupplyConsumer preferences Prices of productive resources
Consumer incomes Business taxes
Prices of related products Technology
Expectations of future prices, incomes, or availability
Prices of substitutes in production
Population: its size, income distribution, and age
Future expectations of suppliers
Distribution Number of suppliers
Simultaneous Changes in Supply and Demand
• Increase in both demand and supply leads to an increase in equilibrium quantity; price may rise or fall
3-3© 2012 McGraw-Hill Ryerson Limited
LO1
How Well Do Markets Work?
Problems with markets:1. Markets do not always adjust as quickly as we
would like
2. Markets do not always produce equitable results
3. Competitive markets may not exist for some goods or services
3-4© 2012 McGraw-Hill Ryerson Limited
LO2
Price Controls Price Controls • government regulations to set either a maximum
or minimum price for a product
Price Ceiling • a government regulation stipulating the maximum
price that can be charged for a product
Price Floor • a government regulation stipulating the minimum
price that can be charged for a product
3-5© 2012 McGraw-Hill Ryerson Limited
LO3
Price Ceiling
• Used when present market price for a particular product is considered too high for many buyers
• The product is felt to be a necessity
• Example: rent control
3-6© 2012 McGraw-Hill Ryerson Limited
LO3
Allocating Shortages
• The market (supply and demand)
• First come, first served
• Producers’ preferences
• Rationing
3-8© 2012 McGraw-Hill Ryerson Limited
LO3
Price Floor
• Used when present market price for a particular product is considered too low for producers
• Often used in agricultural markets
3-9© 2012 McGraw-Hill Ryerson Limited
LO4
Dealing with Surpluses
• Store it
• Convert it
• Sell it abroad at a reduced price (dump)
• Donate it
• Destroy it
3-12© 2012 McGraw-Hill Ryerson Limited
LO4
Quota• A quota, or restricting output, can raise price
without causing a surplus
3-13© 2012 McGraw-Hill Ryerson Limited
LO3
Vertical Demand Curve• A vertical demand curve suggests that price
does not matter
• Same quantity is demanded no matter what the price
• Some goods seen as necessities (eg, insulin) may have a perfectly inelastic (vertical) range
• Eventually, quantity demanded decreases as income is insufficient to pay for the good
3-14© 2012 McGraw-Hill Ryerson Limited
LO5
Demand Curve
Price
Quantity
•Price is irrelevant.
•This product is a ultra-necessity. (cigarettes, drugs)
•There is a maximum price for all of us. Our demand is limited by our income.
© 2012 McGraw-Hill Ryerson Limited 2- 15
Upward Sloping Demand Curve• Upward sloping demand curves may be true for some
individuals over a limited range of prices
3-16© 2012 McGraw-Hill Ryerson Limited
LO5