supply & demand. before we start economic terms: market competitive market perfectly competitive...
TRANSCRIPT
Supply & DemandSupply & Demand
Before We StartBefore We Start• Economic Terms:• Market• Competitive Market• Perfectly Competitive• Normal Good• Inferior Good• Substitutes• Complements• Ceteris Paribus
• “Other things being equal”
• Economic Terms:• Market• Competitive Market• Perfectly Competitive• Normal Good• Inferior Good• Substitutes• Complements• Ceteris Paribus
• “Other things being equal”
DemandDemand
• Quantity DemandedShift along Demand Curve• Price
• Determinants of DemandShift of the Demand Curve• Price of related goods• Income• Tastes• Expectations• Number of buyers or sellers
• Quantity DemandedShift along Demand Curve• Price
• Determinants of DemandShift of the Demand Curve• Price of related goods• Income• Tastes• Expectations• Number of buyers or sellers
Demand ScheduleDemand Schedule
• Ice cream cones• Price Quantity• $0.00 12• $0.50 10• $1.00 8• $1.50 6• $2.00 4• $2.50 2• $3.00 0
• Ice cream cones• Price Quantity• $0.00 12• $0.50 10• $1.00 8• $1.50 6• $2.00 4• $2.50 2• $3.00 0
Demand CurveDemand Curve
0
0.5
1
1.5
2
2.5
3
0 2 4 6 8 10 12
Demand Curve
0
0.5
1
1.5
2
2.5
3
0 2 4 6 8 10 12
Demand Curve
P
Q
Market DemandMarket Demand
• Market = Sum of parts• 2 person Market
• Price Anne BillMarket
• $0.00 12 7 19• $1.00 8 5
13• $2.00 4 3 7• $3.00 0 1 1
• Market = Sum of parts• 2 person Market
• Price Anne BillMarket
• $0.00 12 7 19• $1.00 8 5
13• $2.00 4 3 7• $3.00 0 1 1
Shift In DemandShift In Demand
• What happens when there is a Change in Demand?
• Changes caused by factors other than price.
• Examples:• > income increases demand for luxury cars• < price in gas decreases demand for economy
cars
• What happens when there is a Change in Demand?
• Changes caused by factors other than price.
• Examples:• > income increases demand for luxury cars• < price in gas decreases demand for economy
cars
Shift In DemandShift In Demand
QuestionQuestion
• Give two economic ways (in terms of demand) that the government could use to stop teenage smoking.• Use graphs to
show your work for both answers.
• Give two economic ways (in terms of demand) that the government could use to stop teenage smoking.• Use graphs to
show your work for both answers.
SupplySupply
What Determines Supply?What Determines Supply?
• Determinants
• Price
• Input Prices
• Technology
• Expectations
• Determinants
• Price
• Input Prices
• Technology
• Expectations
• Terms
• Law of Supply
• Supply Schedule
• Supply Curve
• Terms
• Law of Supply
• Supply Schedule
• Supply Curve
SupplySupply
• Quantity SuppliedMovement along Demand Curve• Price
• Determinants of SupplyChange in the Demand Curve• Price of related goods• Input Prices• Technology• Expectations• Number of buyers or sellers
• Quantity SuppliedMovement along Demand Curve• Price
• Determinants of SupplyChange in the Demand Curve• Price of related goods• Input Prices• Technology• Expectations• Number of buyers or sellers
Supply ScheduleSupply Schedule
• Price
• $0.00• $0.50• $1.00• $1.50• $2.00• $2.50• $3.00
• Price
• $0.00• $0.50• $1.00• $1.50• $2.00• $2.50• $3.00
• Quantity
• 0• 0• 0• 0• 4• 8• 12
• Quantity
• 0• 0• 0• 0• 4• 8• 12
Supply CurveSupply Curve
0
0.5
1
1.5
2
2.5
3
0 2 4 6 8 10 12
Supply Curve
0
0.5
1
1.5
2
2.5
3
0 2 4 6 8 10 12
Supply Curve
P
Q
Shift In SupplyShift In Supply
QuestionQuestion
• Using a supply curve graph, demonstrate the effects of the following on Health Care supply.
• Universal coverage
• Elimination of Caps
• Using a supply curve graph, demonstrate the effects of the following on Health Care supply.
• Universal coverage
• Elimination of Caps
EquilibriumEquilibrium• Supply & Demand• Intersection
determines • Price• Quantity
• Terms• Surplus
• Quantity > demand
• Shortage• Demand > quantity
• Supply & Demand• Intersection
determines • Price• Quantity
• Terms• Surplus
• Quantity > demand
• Shortage• Demand > quantity
Equilibrium GraphEquilibrium Graph
0
0.5
1
1.5
2
2.5
3
0 2 4 6 8 10 12
Demand CurveSupply Curve
0
0.5
1
1.5
2
2.5
3
0 2 4 6 8 10 12
Demand CurveSupply Curve
P
Q
The Market - SurplusPrice (£)
Quantity Bought and Sold (000s)
S
D
£5
600
D1
300
Surplus
£3
450
A shift in the demand curve to the left will reduce the demand to 300 from 500 at a price of £5. Suppliers do not have the information or time to adjust supply immediately and still offer 600 for sale at £5. This results in a market surplus (S > D)
In an attempt to get rid of surplus stock, producers will accept lower prices. Lower prices in tn attract some consumers to buy. The process continues until the surplus disappears and equilibrium is once again reached.
The Market - ShortagePrice (£)
Quantity Bought and Sold (000s)
S
D
£5
600
S1
100
Shortage
£8
350
A shift in the supply curve to the left would lead to less products being available for sale at every price. Suppliers would only be able to offer 100 units for sale at a price of £5 but consumers still desire to purchase 600. This creates a market shortage. (S < D)
The shortage in the market would drive up prices as some consumers are prepared to pay more. The price will continue to rise until the shortage has been competed away and a new equilibrium position has been reached.
Increase in DemandIncrease in DemandPrice
Quantity
D1D2
Decrease in DemandDecrease in DemandPrice
Quantity
D2D1
Increase in SupplyIncrease in SupplyPrice
Quantity
S1 S2
Decrease in SupplyDecrease in SupplyPrice
Quantity
S2 S1
Demand Up & Supply Up Price Undetermined & Quantity
Up
Demand Up & Supply Up Price Undetermined & Quantity
UpPrice
Quantity
D1
S1 S2
D2
P1
Q1 Q2
Demand Down & Supply Down Price Undetermined & Quantity
Down
Demand Down & Supply Down Price Undetermined & Quantity
DownPrice
Quantity
D2
S2 S1
D1
P1
Q2 Q1
Demand Down & Supply Up Price Down & Quantity
Undetermined
Demand Down & Supply Up Price Down & Quantity
UndeterminedPrice
Quantity
D2
S1 S2
D1
P1
P2
Q1
Demand Up & Supply Down Price Up & Quantity
Undetermined
Demand Up & Supply Down Price Up & Quantity
UndeterminedPrice
Quantity
D1
S2 S1
D2
P2
P1
Q1