Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects...
-
Upload
joy-mitchell -
Category
Documents
-
view
219 -
download
2
Transcript of Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects...
![Page 1: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/1.jpg)
Demand, Supply and Market Equilibrium
Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together, we have a
market
![Page 2: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/2.jpg)
Demand
The amount of a good or service that consumers are willing and able to purchase during a given period of time is called quantity demanded.
We will simplify demand analysis by focusing on six critical factors that influence quantity demanded.
![Page 3: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/3.jpg)
Two Types of Demand Functions
Generalized Demand Functions – which show how quantity demanded is influenced by the price of the product and five other factors.
Ordinary Demand Functions – which focus on the relationship between price and quantity demanded, holding other factors constant.
![Page 4: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/4.jpg)
Generalized Demand Functions
),,,,,( NPTPMPfQ eRd
![Page 5: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/5.jpg)
Nature of the Relationship
All six jointly determine quantity demanded.
If want individual effects, must hold others constant - ceteris paribus condition
![Page 6: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/6.jpg)
Price and Quantity Demanded
),,,,,(
NPTPMPfQ e
or
R
or
d
Price and quantity demanded are inversely related. If price increases, holding other factors constant, quantity demanded decreases. This inverse relationship is often referred to as the Law of Demand.
![Page 7: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/7.jpg)
Demand and Income
For normal goods, income and demand are positively related.
For inferior goods, income and demand are inversely related.
),,,,,(
NPTPMPfQ e
or
R
or
d
![Page 8: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/8.jpg)
Demand and Price of Related Goods
For complements, PR and demand are inversely related.
For substitutes, PR and demand are positively related.
When are two goods substitutes? Complements?
),,,,,(
NPTPMPfQ e
or
R
or
d
![Page 9: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/9.jpg)
Demand and Tastes
For this one, I have assumed that an increase in tastes is an indication that consumers perceive the product more favorably and thus are willing and able to purchase more.
),,,,,(
NPTPMPfQ e
or
R
or
d
![Page 10: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/10.jpg)
Demand and Price Expectations
If consumers perceive that an increase in prices is likely in the future, the current level of demand will increase.
),,,,,(
NPTPMPfQ e
or
R
or
d
![Page 11: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/11.jpg)
Demand and Number of Buyers
If the number of buyers increase, demand will increase.
),,,,,(
NPTPMPfQ e
or
R
or
d
![Page 12: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/12.jpg)
Abbreviated Demand Model
Drop tastes – not measurable and not always relevant– Tastes for telephones
Drop number of buyers – often doesn’t change during time period of analysis
Drop price expectations – difficult to measure and only relevant for some goods– Expect price of toilet paper to increase– Expect price of telephone service to increase
![Page 13: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/13.jpg)
Demand Functions
Demand or the demand function is the relationship between price and quantity demanded, holding other factors constant.– Table: see slide following– Graph: see slide following
– Equation: Qd=2000-20P
![Page 14: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/14.jpg)
Demand Schedule
Price Qd=2000-20P
0 2000
25 1500
50 1000
75 500
100 0
![Page 15: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/15.jpg)
Demand Curve
Qd
P
100
2000
50
1000
Q = 2000-20P
![Page 16: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/16.jpg)
Changes in Demand vs Changes in Quantity Demanded
A change in the price of the product, results in a movement along the demand curve and is said to result in a change in quantity demanded.
A change in any of the other (five) factors in the demand function , results in a shift in the demand curve and is said to result in a change in demand.
![Page 17: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/17.jpg)
Supply
Quantity supplied is the amount of a good or service offered for sale in a market during a given period of time.
The quantity of a good offered for sale is based on six factors.
![Page 18: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/18.jpg)
Factors Influencing Supply Decisions Price + Input prices - Prices of related goods in production
– – for substitutes (wheat and corn)– + for complements (oil and gas)
Technology + Price expectations - Number of sellers +
see Table 2.5
![Page 19: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/19.jpg)
Generalized Supply Function
Relationship depicting how all six factors jointly determine quantity supplied.
Qs=g(P, PI,Pr,T,Pe,F)
![Page 20: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/20.jpg)
Supply Function
Shows the relationship between Q and P, holding constant the other 5 factors.
These other factors are called the determinants of supply.
![Page 21: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/21.jpg)
Change in Supply versus Change in Quantity Supplied A change in price causes a change in
quantity supplied and is reflected by a movement along a fixed supply function.
A change in any of the determinants of supply causes a change in supply and is reflected by a shift in the supply function.
![Page 22: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/22.jpg)
Supply Schedule
A table showing a list of all possible prices and the corresponding quantities supplied.
Price Q Supplied
65 750
60 700
50 600
40 500
30 400
20 300
10 200
![Page 23: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/23.jpg)
Supply Curve
A graph showing relationship between price and quantity supplied
P
Q
S
![Page 24: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/24.jpg)
Supply Shifts – Increase Versus Decrease
P
Q
S0
![Page 25: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/25.jpg)
Market Equilibrium
D
S
P*
Q*
![Page 26: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/26.jpg)
Excess Supply-Surplus
D
S
P*
Q*
PP11
![Page 27: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/27.jpg)
Excess Demand - Shortage
D
S
P*
Q*
P2
![Page 28: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/28.jpg)
Market Equilibrium-Changes in Demand
D
S
P*
Q*
![Page 29: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/29.jpg)
Market Equilibrium-Changes in Supply
D
S
P*
Q*
![Page 30: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/30.jpg)
Market Equilibrium- Simultaneous Changes in S & D
D
S
P*
Q*
Indeterminate?
![Page 31: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/31.jpg)
Qualitative versus Quantitative Market Forecasting Qualitative – only direction is predicted Quantitative – direction and magnitude is
forecasted
![Page 32: Demand, Supply and Market Equilibrium Demand reflects buyer’s decision making Supply reflects seller’s decision making Put supply and demand together,](https://reader036.fdocuments.in/reader036/viewer/2022062421/56649cff5503460f949cfeba/html5/thumbnails/32.jpg)
Price Fixing
Price Ceiling – Maximum price is mandated– Shortages result– Potential for Black Market
Price Floor– Minimum price is mandated