macroeconomics 231. topic #3 supply and demand market equilibrium equilibrium in a market occurs...
TRANSCRIPT
MACROECONOMICS
231
TOPIC #3
SUPPLY
and
DEMAND
Market Equilibrium
Equilibrium in a market occurs when the price balances the plans of buyers and sellers.
Equilibrium price is the price at which quantity demanded equals quantity supplied.
Equilibrium quantity is the quantity bought and sold at the equilibrium price.
Market Equilibrium
Price as a Regulator– If the price is too low, quantity demanded
exceeds quantity supplied.– If the price is too high, quantity supplied
exceeds quantity demanded.
Market Equilibrium
Quantity Quantity Shortage(–)Price demanded supplied or surplus(+)(dollars
per tape) (millions of tapes per week)
1 9 0
2 6 3
3 4 4
4 3 5
5 2 6
Market Equilibrium
Quantity Quantity Shortage(–)Price demanded supplied or surplus(+)(dollars
per tape) (millions of tapes per week)
1 9 0 –9
2 6 3 –3
3 4 4 0
4 3 5 +2
5 2 6 +4
Market Equilibrium
0 2 4 6 8 10
1
2
3
4
5
6
Quantity (millions of tapes per week)
Pri
ce (
doll
ar p
er ta
pe)
Market Equilibrium
0 2 4 6 8 10
1
2
3
4
5
6
Quantity (millions of tapes per week)
Pri
ce (
doll
ar p
er ta
pe)
Demand for tapes
Market Equilibrium
0 2 4 6 8 10
1
2
3
4
5
6
Quantity (millions of tapes per week)
Pri
ce (
doll
ar p
er ta
pe)
Supply of Tapes
Demand for tapes
Market Equilibrium
0 2 4 6 8 10
1
2
3
4
5
6
Quantity (millions of tapes per week)
Pri
ce (
doll
ar p
er ta
pe)
Supply of Tapes
Demand for tapes
Equilibrium
Market Equilibrium
0 2 4 6 8 10
1
2
3
4
5
6
Quantity (millions of tapes per week)
Pri
ce (
doll
ar p
er ta
pe)
Supply of Tapes
Surplus of2 million tapesat $4 a tape
Demand for tapes
Equilibrium
Market Equilibrium
0 2 4 6 8 10
1
2
3
4
5
6
Quantity (millions of tapes per week)
Pri
ce (
doll
ar p
er ta
pe)
Supply of Tapes
Surplus of2 million tapesat $4 a tape
Shortage of 3 million tapes at $2 a tape
Demand for tapes
Equilibrium
Market Equilibrium
Price Adjustments– A shortage forces the price up.– A surplus forces the price down.
Such price changes are mutually beneficial to both buyers and sellers.
Predicting Changes in Price and Quantity
A Change in Demand– What would happen to the price and quantity of
tapes if the price of a Walkman falls from $200 to $50.
The Effects of a Change in Demand
Quantity demanded Price (millions of tapes per week)(dollars Quantity suppliedper tape ) Walkman $200 Walkman $50 (millions of tapes per week)
1 9 0
2 6 3
3 4 4
4 3 5
5 2 6
The Effects of a Change in Demand
Quantity demanded Price (millions of tapes per week)(dollars Quantity suppliedper tape ) Walkman $200 Walkman $50 (millions of tapes per week)
1 9 13 0
2 6 10 3
3 4 8 4
4 3 7 5
5 2 6 6
The Effects of a Change in Demand
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes
Demand for tapes(Walkman $200)
The Effects of a Change in Demand
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes
Demand for tapes(Walkman $200)
Demand for tapes(Walkman $50)
The Effects of a Change in Demand
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes
Demand for tapes(Walkman $200)
Demand for tapes(Walkman $50)
A Change in Demand
Prediction– When demand increases, both the price and
quantity increase.– When demand decreases, both the price and
quantity decrease.
Predicting Changes in Price and Quantity
A Change in Supply– What would happen to the price and quantity
of tapes if a new cost-saving production technology was developed?
The Effects of a Change in Supply
Quantity supplied Price (millions of tapes per week)
(dollars Quantity demanded old new
per tape ) (millions of tapes per week) technology technology
1 9 0
2 6 3
3 4 4
4 3 5
5 2 6
The Effects of a Change in Supply
Quantity supplied Price (millions of tapes per week)
(dollars Quantity demanded old new
per tape ) (millions of tapes per week) technology technology
1 9 0 3
2 6 3 6
3 4 4 8
4 3 5 10
5 2 6 12
The Effects of a Change in Supply
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)
Demand for tapes
Supply of tapes(old technology)
The Effects of a Change in Supply
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes(old technology)
Demand for tapes
Supply of tapes(new technology)
The Effects of a Change in Supply
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes(old technology)
Demand for tapes
Supply of tapes(new technology)
A Change in Supply
Prediction– When supply increases, the quantity increases
and the price falls.– When supply decreases, the quantity decreases
and the price rises
Predicting Changes in Price and Quantity
A Change in Both Demand and Supply– What would happen if both demand and supply
change together?
The Effects of an Increase in Both Demand and Supply
Original Quantities New Quantities (millions of tapes per week) (millions of tapes per week)
Price Quantity Quantity Quantity Quantity (dollars demanded supplied demanded supplied
per tape ) Walkman old Walkman new $200 technology $50 technology
1 9 0
2 6 3
3 4 4
4 3 5
5 2 6
The Effects of an Increase in Both Demand and Supply
Original Quantities New Quantities (millions of tapes per week) (millions of tapes per week)
Price Quantity Quantity Quantity Quantity (dollars demanded supplied demanded supplied
per tape ) Walkman old Walkman new $200 technology $50 technology
1 9 0 13 3
2 6 3 10 6
3 4 4 8 8
4 3 5 7 10
5 2 6 6 12
The Effects of an Increase in Both Demand and Supply
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes(old technology)
Demand for tapes(Walkman $200)
The Effects of an Increase in Both Demand and Supply
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes(old technology)
Demand for tapes(Walkman $200)
Demand for tapes(Walkman $50)
The Effects of an Increase in Both Demand and Supply
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes(old technology)
Demand for tapes(Walkman $200)
Demand for tapes(Walkman $50)
Supply of tapes(new technology)
A Change in Both Demand and Supply
Prediction– When both demand and supply increase, the
quantity increases and the price decreases, or remains constant.
– When both demand and supply decreases, the quantity decreases and the price increases, decreases, or remains constant.
The Effects of an Decrease in Demand and an Increase in Supply
Original Quantities New Quantities (millions of tapes per week) (millions of tapes per week)
Price Quantity Quantity Quantity Quantity (dollars demanded supplied demanded supplied
per tape ) CD player old CD player new $400 technology $200 technology
1 13 0
2 10 3
3 8 4
4 7 5
5 6 6
The Effects of an Decrease in Demand and an Increase in Supply
Original Quantities New Quantities (millions of tapes per week) (millions of tapes per week)
Price Quantity Quantity Quantity Quantity (dollars demanded supplied demanded supplied
per tape ) CD player old CD player new $400 technology $200 technology
1 13 0 9 3
2 10 3 6 6
3 8 4 4 8
4 7 5 3 10
5 6 6 2 12
The Effects of an Decrease in Demand and an Increase in Supply
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes(old technology)
Demand for tapes(CD player $400)
The Effects of an Decrease in Demand and an Increase in Supply
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes(old technology)
Demand for tapes(CD player $400)
Demand for tapes(CD player $400)
The Effects of an Decrease in Demand and an Increase in Supply
Quantity (millions of tapes per week)0 2 4 6 8 10 12 14
1
2
3
4
5
6P
rice
(do
llar
per
tape
)Supply of tapes(old technology)
Demand for tapes(CD player $400)
Demand for tapes(CD player $400)
Supply of tapes(new technology)
The Effects of a Decrease in Demand and an Increase in Supply
Prediction– When demand decreases and supply increases,
the price falls and the quantity increases, decreases, or remains constant.
– When demand increases and supply decreases, the price rises and the quantity increases, decreases, or remains constant.