Kinh tế học - Chapter 2: Demand, supply, & market equilibrium

Chapter 2Demand, Supply, & Market EquilibriumDemandQuantity demanded (Qd)Amount of a good or service consumers are willing & able to purchase during a given period of time2General Demand FunctionSix variables that influence QdPrice of good or service (P)Incomes of consumers (M)Prices of related goods & services (PR)Expected future price of product (Pe)Number of consumers in market (N)General demand function3General 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 relationship4General Demand FunctionVariableRelation to QdSign of Slope ParameterPPeNMPRInverseDirectDirectDirectDirect 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 positiveInverse for complementse = Qd/ is positive5Direct 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 & Qd decreases when P rises, all else constantQd/P must be negative6Inverse 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)7Graphing 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 good8A Demand Curve (Figure 2.1)9Graphing Demand CurvesChange in quantity demandedOccurs when price changesMovement along demand curveChange in demandOccurs when one of the other variables, or determinants of demand, changesDemand curve shifts rightward or leftward10Shifts in Demand (Figure 2.2)11SupplyQuantity supplied (Qs)Amount of a good or service offered for sale during a given period of time12SupplySix 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 function 13General 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 relationship14General Supply FunctionVariableRelation to QsSign of Slope ParameterPPeFPIPrDirectDirectDirectInverseInverseInverse 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 positiveDirect for complementsn = Qs/T is positiveT15Direct 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)16Inverse 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)17Graphing 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 sale18A Supply Curve (Figure 2.3)19Graphing 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 leftward20Shifts in Supply (Figure 2.4)21Market 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 price22Market Equilibrium (Figure 2.5)23Market EquilibriumExcess demand (shortage)Exists when quantity demanded exceeds quantity suppliedExcess supply (surplus)Exists when quantity supplied exceeds quantity demanded24Value 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 good25Measuring 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 output26Measuring the Value of Market Exchange (Figure 2.6)27Changes 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 variable28Demand Shifts (Supply Constant) (Figure 2.7)29Supply Shifts (Demand Constant) (Figure 2.8)30Simultaneous 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 shift31SD’S’’S’DSimultaneous Shifts: (D, S)QPrice may rise or fall; Quantity risesP•AQPB•P’Q’Q’’C•P’’32DSimultaneous Shifts: (D, S)SD’S’’S’QPrice falls; Quantity may rise or fallP•AQPB•P’Q’Q’’C•P’’33S’’Simultaneous Shifts: (D, S)DSD’S’QPrice rises; Quantity may rise or fallP•AQPB•P’Q’Q’’C•P’’34Simultaneous Shifts: (D, S)S’’DSD’S’QPrice may rise or fall; Quantity fallsP•AQPB•P’Q’Q’’C•P’’35Ceiling & 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 occurs36Ceiling & Floor Prices (Figure 2.12)Qx QuantityPrice (dollars)QxPxPxQuantityPrice (dollars)SxDx2501622233284Panel A – Ceiling priceSxDx250Panel B – Floor price37