Bài giảng Managerial Economics - Chapter 02: Demand, Supply, and Market Equilibrium

Chapter 2: Demand, Supply, and Market EquilibriumMcGraw-Hill/IrwinCopyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.DemandQuantity demanded (Qd)Amount of a good or service consumers are willing & able to purchase during a given period of timeDefinitionsDemand functionQuantity demand as a function of the independent variables that influence the quantity demandedDirect demandThe direct relationship between the quantity demanded and price (other independent variables held constant)Inverse demandThe direct relationship between price and quantity demandedDemand curveA graphical presentation of inverse demand General Demand FunctionSix variables that influence QdPrice of good or service (P)Incomes of consumers (M)Prices of related goods & services (PR)Taste patterns of consumers (T)Expected future price of product (Pe)Number of consumers in market (N)General demand function Qd = f(P, M, PR, T, Pe , N)General Demand Functionb, c, d, e, f, & g are slope parametersMeasure effect on Qd of changing one of the variables while holding the others constantSign of parameter shows how variable is related to QdPositive sign indicates direct relationshipNegative sign indicates inverse relationshipQd = a + bP + cM + dPR + eT + fPe + gNVariableRelation to QdSign of Slope ParameterGeneral Demand FunctionInverse for complementsPPeNMPRInverseDirectDirectDirectDirect for normal goodsInverse for inferior goodsDirect for substitutesb = Qd/P is negativec = Qd/M is positivec = Qd/M is negatived = Qd/PR is positived = Qd/PR is negativef = Qd/Pe is positiveg = Qd/N is positivee = Qd/T is positiveTDirect Demand FunctionThe direct demand function, or simply demand, shows how quantity demanded, Qd , is related to product price, P, when all other variables are held constant Qd = f(P)Law of DemandQd increases when P falls, all else constantQd decreases when P rises, all else constantQd/P must be negativeDirect Demand FunctionDemand for PorkInverse Demand FunctionTraditionally, price (P) is plotted on the vertical axis & quantity demanded (Qd) is plotted on the horizontal axisThe equation plotted is the inverse demand function, P = f(Qd)Inverse Demand FunctionHow much consumers are willing to pay as a function of quantityGraphing Demand CurvesA point on a direct demand curve shows either:Maximum amount of a good that will be purchased for a given priceMaximum price consumers will pay for a specific amount of the goodDirect Demand FunctionDemand Schedule2-13A Demand Curve (Figure 2.1)Graphing Demand CurvesChange in quantity demandedOccurs when only price changesMovement along demand curveChange in demandOccurs when one of the other variables, or determinants of demand, changesDemand curve shifts rightward or leftwardThree Demand ShiftsShifts in Demand (Figure 2.2)SupplyQuantity supplied (Qs)Amount of a good or service offered for sale during a given period of timeSix variables that influence QsPrice of good or service (P)Input prices (PI )Prices of goods related in production (Pr)Technological advances (T)Expected future price of product (Pe)Number of firms producing product (F)General supply functionQs = f(P, PI, Pr, T, Pe, F)SupplyGeneral Supply Functionk, l, m, n, r, & s are slope parametersMeasure effect on Qs of changing one of the variables while holding the others constantSign of parameter shows how variable is related to QsPositive sign indicates direct relationshipNegative sign indicates inverse relationshipQs = h + kP + lPI + mPr + nT + rPe + sFVariableRelation to QsSign of Slope ParameterGeneral Supply FunctionDirect for complementsPPeFPIPrDirectDirectDirectInverseInverseInverse for substitutesk = Qs/P is positivel = Qs/PI is negativem = Qs/Pr is negativem = Qs/Pr is positiver = Qs/Pe is negatives = Qs/F is positiven = Qs/T is positiveTDirect Supply FunctionThe direct supply function, or simply supply, shows how quantity supplied, Qs , is related to product price, P, when all other variables are held constant Qs = f(P)Direct Supply FunctionInverse Supply FunctionTraditionally, price (P) is plotted on the vertical axis & quantity supplied (Qs) is plotted on the horizontal axisThe equation plotted is the inverse supply function, P = f(Qs)Inverse Supply FunctionGraphing Supply CurvesA point on a direct supply curve shows either:Maximum amount of a good that will be offered for sale at a given priceMinimum price necessary to induce producers to voluntarily offer a particular quantity for saleDirect Supply FunctionA Supply Curve (Figure 2.3)Graphing Supply CurvesChange in quantity suppliedOccurs when price changesMovement along supply curveChange in supplyOccurs when one of the other variables, or determinants of supply, changesSupply curve shifts rightward or leftwardThree Supply FunctionsShifts in Supply (Figure 2.4)Market EquilibriumEquilibrium price & quantity are determined by the intersection of demand & supply curvesAt the point of intersection, Qd = QsConsumers can purchase all they want & producers can sell all they want at the “market-clearing” or “equilibrium” priceMarket EquilibriumMarket Equilibrium (Figure 2.5)Market EquilibriumExcess demand (shortage)Exists when quantity demanded exceeds quantity suppliedExcess supply (surplus)Exists when quantity supplied exceeds quantity demandedCeiling & Floor PricesCeiling priceMaximum price government permits sellers to charge for a goodWhen ceiling price is below equilibrium, a shortage occursFloor priceMinimum price government permits sellers to charge for a goodWhen floor price is above equilibrium, a surplus occursCeiling & Floor Prices (Figure 2.12)Qx QuantityQxPxPxQuantityPrice (dollars)SxDx2501622233284Panel A – Ceiling priceSxDx250Panel B – Floor priceMarket Equilibrium$50 Price CeilingA price ceiling is only effective when it is set below the equilibrium priceMarginal Valuation$80 Price Floor500 Unit QuotaThe amount exchangedAbove equilibrium price the amount exchanged is determined by the demand curveBelow equilibrium price the amount exchanged is determined by the supply curveValue of Market ExchangeTypically, consumers value the goods they purchase by an amount that exceeds the purchase price of the goodsEconomic valueMaximum amount any buyer in the market is willing to pay for the unit, which is measured by the demand price for the unit of the goodMeasuring the Value of Market ExchangeConsumer surplusDifference between the economic value of a good (its demand price) & the market price the consumer must payProducer surplusFor each unit supplied, difference between market price & the minimum price producers would accept to supply the unit (its supply price)Social surplusSum of consumer & producer surplusArea below demand & above supply over the relevant range of outputMeasuring the Value of Market Exchange (Figure 2.6)Changes in Market EquilibriumQualitative forecastPredicts only the direction in which an economic variable will moveQuantitative forecastPredicts both the direction and the magnitude of the change in an economic variableDemand Shifts (Supply Constant) (Figure 2.7)Supply Shifts (Demand Constant) (Figure 2.8)Simultaneous ShiftsWhen demand & supply shift simultaneouslyCan predict either the direction in which price changes or the direction in which quantity changes, but not both The change in equilibrium price or quantity is said to be indeterminate when the direction of change depends on the relative magnitudes by which demand & supply shiftS′′Simultaneous Shifts: (D, S)SD′S′DQPrice may rise or fall; Quantity risesP•AQPB•P′Q′Q′′C•P′′S′Simultaneous Shifts: (D, S)DSD′S′QPrice falls; Quantity may rise or fallP•AQPB•P′Q′Q′′C•P′′Simultaneous Shifts: (D, S)S′′DSD′S′QPrice rises; Quantity may rise or fallP•AQPB•P′Q′Q′′C•P′′Simultaneous Shifts: (D, S)S′′DSD′S′QPrice may rise or fall; Quantity fallsP•AQPB•P′Q′Q′′C•P′′