Bài giảng Macro - Chapter 3 Individual markets demand & supply

CHAPTER 3INDIVIDUAL MARKETSDemand & SupplySLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGESDqpIn this chapter you will learnWhat markets areWhat demand is and what factors affect itWhat supply is and what factors affect itHow demand and supply together determine market equilibriumCHAPTER 3 TOPICSMARKETS DEMANDSUPPLYSUPPLY & DEMAND: MARKET EQUILIBRIUMMARKETSHOW ARE PRICES DETERMINED IN A MARKET SYSTEM?...BY INTERACTION BETWEEN BUYERS SELLERS IN MARKETSBY MARKETS WE MEANINSTITUTIONS THAT BRING TOGETHERBUYERS AND SELLERSMARKETSfor example:corner gas stationfarmer’s marketToronto Stock Exchangeetc.ASSUMPTIONSCompetitive markets:many independent buyers & sellersstandardized productsCHAPTER 3 TOPICSMARKETS DEMANDSUPPLYSUPPLY & DEMAND: MARKET EQUILIBRIUMDEMANDa schedule or a curve that shows the various amounts consumers are willing and able to purchase at each of a series of possible prices, during some specified period of timeDEMANDPQd$ 1$ 2$ 3$ 4$ 51020355580The information can be presented in a demand scheduleDEMANDDEMANDPQd$ 1$ 2$ 3$ 4$ 51020355580quantity demandedThe information can be presented in a demand scheduleor graphedPQd$ 1$ 2$ 3$ 4$ 51020355580© 2002 McGraw-Hill Ryerson Ltd.12Chapter 3or graphedPQd$ 1$ 2$ 3$ 4$ 51020355580© 2002 McGraw-Hill Ryerson Ltd.13Chapter 3or graphedPQd$ 1$ 2$ 3$ 4$ 51020355580© 2002 McGraw-Hill Ryerson Ltd.14Chapter 3or graphedPQd$ 1$ 2$ 3$ 4$ 51020355580© 2002 McGraw-Hill Ryerson Ltd.15Chapter 3or graphedPQd$ 1$ 2$ 3$ 4$ 51020355580© 2002 McGraw-Hill Ryerson Ltd.16Chapter 3or graphedPQd$ 1$ 2$ 3$ 4$ 51020355580© 2002 McGraw-Hill Ryerson Ltd.17Chapter 3LAW OF DEMANDall else equal, as price falls, the quantity demanded rises (& vice versa) supported by:concept of diminishing marginal utilityincome effectsubstitution effectINDIVIDUAL VS. MARKET DEMANDpriceQD–1st buyerQD–2ndbuyerQD–market$51012$42023$33539$25560$18087224374115167+=353974© 2002 McGraw-Hill Ryerson Ltd.20Chapter 3DETERMINANTS OF DEMANDPRICE is the most important influence on the amount of any product purchaseda change in price yields a movement along the demand curve & a change in quantity demandedPAQADchange in price  change in quantity demandedQ1Q2P2P1movement along the curveCHANGE IN DEMANDwhen any OTHER determinant changesshift in the demand curvePAQADD’Demand Shifters are changes in:tastes (preferences)number of buyersincomeprices of related goodsexpectationslet’s examine these more closelyCHANGE IN DEMANDChanges in tastes (preferences)positive change shifts D curve rightmore will be demanded at each priceCHANGE IN DEMANDPAQADD’not upor downChanges in number of buyers:increase will shift curve rightCHANGE IN DEMANDPAQADD’Changes in money incomes:when income increasesdemand for NORMAL goods increasesdemand for INFERIOR goods decreasesCHANGE IN DEMANDChanges in prices of related goods:when two products are SUBSTITUTES, price of one & demand for the other are positively relatedCHANGE IN DEMANDChanges in prices of related goods:when two products are COMPLEMENTS, price of one & demand for the other are negatively relatedCHANGE IN DEMANDChanges in prices of related goods:when products are unrelatedno effectCHANGE IN DEMANDChanges in expectations:about future prices or incomesCHANGE IN DEMANDpricequantityDecrease in QDIncrease in QDDIf the price of a good changes, but all other influences on buyers’ plans are held constant, there is a change in quantity demanded, but no change in demand.NOT demand!If any other determinant of demand changes (tastes, no. of buyers, income, etc.) there is a change in demand, and a shift in the demand curve.pricequantityDIncrease in DDecrease in DFigure 3-3CHAPTER 3 TOPICSMARKETS DEMANDSUPPLYSUPPLY & DEMAND: MARKET EQUILIBRIUMSUPPLYa schedule or a curve showing the amounts that producers are willing and able to make available for sale at each of a series of possible prices, during some specified period of timeSUPPLYThe information could be captured in a supply schedule...SUPPLYPQs$ 1$ 2$ 3$ 4$ 560503520 5SUPPLYquantity suppliedPQs$ 1$ 2$ 3$ 4$ 560503520 5The information could be captured in a supply schedule...or graphedPQs$ 1$ 2$ 3$ 4$ 560503520 5© 2002 McGraw-Hill Ryerson Ltd.38Chapter 3LAW OF SUPPLYall else being constant, as price rises, the quantity supplied rises (& vice versa) why?price is revenue to suppliershigher price necessary to induce higher supply, to cover higher costs of productionINDIVIDUAL VS. MARKET SUPPLYDETERMINANTS OF SUPPLYPRICE is the most important determinant of quantity supplieda change in price yields a movement along the supply curve & a change in quantity suppliedPAQASchange in price  change in quantity suppliedP1P2Q1Q2movement along the curveCHANGE IN SUPPLYwhen any OTHER determinant changesshift in the SUPPLY curvePAQASS’Supply Shifters are changes in:resource pricestechnologytaxes & subsidiesprices of other goodsprice expectationsnumber of sellerslet’s examine these more closelyDETERMINANTS OF SUPPLYChanges in resource prices:decrease will increase supply & shift curve rightmore will be supplied at each priceDETERMINANTS OF SUPPLYnot upor downPAQASS’Changes in technology:new technology will decrease costs & increase supplyDETERMINANTS OF SUPPLYPAQASS’Changes in taxes & subsidies:increases in taxes will reduce supplyDETERMINANTS OF SUPPLYPAQASS’DETERMINANTS OF SUPPLYChanges in prices of other goods:higher prices of substitutes in production will reduce supplyPAQASS’Changes in price expectations:of the future price of a productdifficult to generalizeDETERMINANTS OF SUPPLYChanges in number of sellers:as the number of sellers increases, so does supplyDETERMINANTS OF SUPPLYpricequantitySIncrease in QSDecrease in QSIf the price of a good changes, but all other influences on producers’ plans are held constant, there is a change in quantity supplied, but no change in supply.NOT supply!pricequantitySIncrease in SDecrease in SIf any other determinant of supply changes (resource prices, technology, etc.) there is a change in supply, and a shift in the supply curve.Figure 3-4CHAPTER 3 TOPICSMARKETS DEMANDSUPPLYSUPPLY & DEMAND: MARKET EQUILIBRIUMEQUILIBRIUMequilibrium price will be established where the supply decisions of producers and the demand decisions of buyers are mutually consistentsurpluses drive prices downshortages drive prices upEQUILIBRIUMlet’s look at the process of adjustment to equilibrium graphicallyEquilibrium6000-bushelsurplusSD$4 is not the equilibrium priceEquilibrium7000-bushelshortageSD$2 is not the equilibrium priceEquilibriumQD=QSDS$3 is the equilibrium priceChanges in Supply, Demand & Equilibriumchanges in demand or supply will affect the equilibrium price and quantityINCREASE IN DEMANDAn increase in demand will cause: a shortage at the original price p1D1D2PQp1q1q3S© 2002 McGraw-Hill Ryerson Ltd.62Chapter 3INCREASE IN DEMANDConsumers will bid price up to p2QS will increase, QD will decreaseD1D2PQp1q1p2q2q3new equilibrium reached at p2, q2Sprice has increased from p1 to p2,quantity traded has increased from q1 to q2NOT an increase in supply© 2002 McGraw-Hill Ryerson Ltd.63Chapter 3DECREASE IN DEMANDAn decrease in demand will cause: a surplus at the original price p1D2D1PQp1q1q3S© 2002 McGraw-Hill Ryerson Ltd.64Chapter 3DECREASE IN DEMANDD2D1PQp1q1q3SProducers will drop price to p2QS will decrease, QD will increasenew equilibrium reached at p2, q2price has decreased from p1 to p2,quantity traded has decreased from q1 to q2q2p2NOT a decrease in supply© 2002 McGraw-Hill Ryerson Ltd.65Chapter 3INCREASE IN SUPPLYS1S2PQDq1p1q3An increase in supply will cause: a surplus at the original price p1© 2002 McGraw-Hill Ryerson Ltd.66Chapter 3INCREASE IN SUPPLYS1S2PQDq1p1q3Producers will drop price to p2QS will decrease, QD will increasenew equilibrium reached at p2, q2q2p2price has decreased from p1 to p2,quantity traded has increased from q1 to q2© 2002 McGraw-Hill Ryerson Ltd.67Chapter 3DECREASE IN SUPPLYS2S1PQDq3p1q1An decrease in supply will cause: a shortage at the original price p1© 2002 McGraw-Hill Ryerson Ltd.68Chapter 3DECREASE IN SUPPLYS2S1PQDq3p1q1Consumers will bid price up to p2QS will increase, QD will decreasenew equilibrium reached at p2, q2p2q2price has increased from p1 to p2,quantity traded has decreased from q1 to q2© 2002 McGraw-Hill Ryerson Ltd.69Chapter 3Complex Caseswhen both supply and demand change, the effect is a combination of the individual effectsif both demand and supply shift, one of either price or quantity cannot be predicted–-the result is indeterminateComplex CasesChange in supplyChange in demandEffect on equilibrium priceEffect on equilibrium quantityIncreaseDecreaseDecreaseIndeterminateDecreaseIncreaseIncreaseIndeterminateIncreaseIncreaseIndeterminateIncreaseDecreaseDecreaseIndeterminateDecreaseTable 3-9Complex CasesA Reminder: “Other Things Equal”Application: Pink SalmonCHAPTER 3 TOPICSMARKETS DEMANDSUPPLYSUPPLY & DEMAND: MARKET EQUILIBRIUMCOMING SOONAn Overview of the Market System & the Canadian EconomyChapter 4