Kinh tế học vĩ mô - Chapter 4: Supply and demand

Supply and DemandChapter 4Laugher Curve Teach a parrot the terms of supply and demand and you’ve got an economist. Thomas CarlyleDemandDemand means a willingness and capacity to pay.DemandPrices are the tool by which the market coordinates individual desires.The Law of DemandQuantity demanded rises as price falls, other things constant.Quantity demanded falls as price rises, other things constant.Thus, there is an inverse relationship between price and quantity demanded.The Law of DemandWhat accounts for the law of demand?People tend to substitute other goods for goods whose price has increased.The Demand CurveThe demand curve is the graphic representation of the relationship between price and quantity demanded.The demand curve slopes downward and to the right.As the price goes up, the quantity demanded goes down.The Demand CurveThe negative slope tells us that quantity demanded varies indirectly—in the opposite direction—with price.Other Things Constant“Other things constant” in our definition of demand means that all other factors that affect the analysis are assumed to remain constant, whether they actually remain constant or not.These factors may include changing tastes, prices of other goods, even the weather.DPrice (per unit)0Quantity demanded (per unit of time)PAQAAA Sample Demand Curve, Fig. 4-1, p 84Shifts in Demand Versus Movements Along a Demand CurveDemand refers to a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant.Graphically, it refers to the entire demand curve.Shifts in Demand Versus Movements Along a Demand CurveQuantity demanded refers to a specific amount that will be demanded per unit of time at a specific price, other things constant.Graphically, it refers to a specific point on the demand curve.Shifts in Demand Versus Movements Along a Demand CurveA movement along a demand curve is the graphical representation of the effect of a change in price on the quantity demanded.Shifts in Demand Versus Movements Along a Demand CurveA shift in demand is the graphical representation of the effect of anything other than price on demand.The original curve will move to the right or to the left.Change in Quantity Demanded Fig. 4-2a, p 860D1Change in quantity demanded(a movement along the curve) BPrice (per unit)Quantity demanded (per unit of time)100$2$1200AD0D1Shift in Demand, Fig. 4-2b, p 86Price (per unit)Quantity demanded (per unit of time)100$2$1200BAChange in demand(a shift of the curve) 250Shift Factors of DemandShift factors of demand are factors that cause shifts in the demand curve to the right or left.Shift Factors of DemandShift factors of demand include—but are not limited to—the following:Society's incomeThe prices of other goodsTastesExpectationsPopulationShift Factors of DemandA rise in income may increase demand for goods.When the prices of substitute goods fall, you will consume less of the good whose price has not changed.A change in taste will change demand without a change in price.Shift Factors of DemandIf you expect your income to rise, you may consume more now.If you expect prices to fall in the future, you may put off purchases today.Shift Factors of DemandIf there is an increase in population, demand will increase at every priceWith a population decrease, demand will decrease as wellThe Demand TableThe demand table assumes all the following:As price rises, quantity demanded declines.Quantity demanded has a specific time dimension to it.The Demand TableThe demand table assumes all the following:All the products involved are identical in shape, size, quality, etc.The schedule assumes that everything else is held constant.From a Demand Table to a Demand CurveYou plot each point in the demand table on a graph and connect the points to derive the demand curve.From a Demand Table to a Demand CurveThe demand curve graphically conveys the same information that is on the demand table.From a Demand Table to a Demand CurveThe curve represents the maximum price that you will pay for various quantities of a good—you will happily pay less.Price per cassette (in dollars) A Demand CurveQuantity of cassettes demanded (per week)123456789101112 13$6.005.00 4.00 3.00 2.00 1.00 .50 03.50EDCBFAFrom a Demand Table to a Demand Curve, Fig. 4-3 (a and b), p 87Price per cassetteABCDE A Demand TableCassette rentals demanded per week$0.50 1.002.003.004.0098642 Demand for cassettesGIndividual and Market Demand GoodsA market demand curve is the horizontal sum of all individual demand curves.This is determined by adding the individual demand curves of all the consumers (“demanders”).Individual and Market Demand GoodsIn reality, the sellers do not add up individual demand curves.They estimate total market demand for their product which becomes smooth and downward sloping curve.Individual and Market Demand GoodsThe demand curve is downward sloping for the following reasons:At lower prices, existing consumers buy more.At lower prices, new consumers enter the market.From Individual Demandsto a Market, Fig. 4-4 (a and b), p 88(1)Price per cassette$.0.501.001.502.002.503.003.504.00(2)Marie’s demand(3)Pierre’s demand(2)Cathy’s demand(3)Market demand98765432654321001100000016141197532ABCDEFGHQuantity of cassettes demanded per week2CathyPierreMarieDACEFG$4.00 3.503.002.502.001.501.000.500Price per cassette (in dollars)46810121416BMarket demandSupplyIndividuals control the factors of production.Factors of production are the resources or inputs, necessary to produce goods or services.SupplyIndividuals supply factors of production to intermediaries or firms.SupplyThe analysis of the supply of produced goods has two parts:An analysis of the supply of the factors of production to households and firms.An analysis of why firms transform those factors of production into usable goods and services.The Law of SupplyQuantity supplied rises as price rises, other things constant.Quantity supplied falls as price falls, other things constant.Thus, there is a direct relationship between price and quantity supplied.The Law of SupplyThe law of supply is accounted for by two factors:In the face of rising prices, firms arrange their activities to supply more of the good to the market, substituting production of that good for the production of other goods.Assuming firms' costs are constant, a higher price means higher profits.The Supply CurveThe supply curve is the graphic representation of the law of supply.The supply curve slopes upward to the right.The slope tells us that the quantity supplied varies positively—in the same direction—with the price.Quantity supplied (per unit of time)0SAPrice (per unit)PAQAA Sample Supply Curve Fig. 4-5, p 90Shifts in Supply Versus Movements Along a Supply CurveSupply refers to a schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant.Shifts in Supply Versus Movements Along a Supply CurveIf the amount supplied is affected by anything other than a change in price, there will be a shift in supply.Shift in supply -- the graphic representation of the effect of a change in a factor other than price on supply.Shifts in Supply Versus Movements Along a Supply CurveQuantity supplied refers to a specific amount that will be supplied at a specific price.Shifts in Supply Versus Movements Along a Supply CurveChanges in price cause changes in quantity supplied represented by a movement along a supply curve.Change in quantity supplied (a movement along the curve)Change in Quantity Supplied Fig. 4-6a, p 92Price (per unit)Quantity supplied (per unit of time)S0$15A1,2501,500BShift in Supply Fig. 4-6b, p 92Price (per unit)Quantity supplied (per unit of time)S0Shift in Supply(a shift of the curve)S1$15AB1,2501,500Shift Factors of SupplyShift factors of supply are those factors that cause shifts in the entire supply curve to the left or right.Shift Factors of SupplyThe following are shift factors of supply:Changes in the prices of inputs used in the production of a goodChanges in technologyChanges in suppliers' expectationsChanges in taxes and subsidiesShift Factors of SupplyChanges in the prices of inputs used in the production of a good.If costs rise, then profits go down, and there is less incentive to supply.If costs go up substantially, the firm may even shut down.Shift Factors of SupplyTechnology makes costs decrease, profits go up, thus the incentive to supply also increases.This is especially true when new technology replaces labor.Shift Factors of SupplyIf they expect prices to rise in the future, suppliers may store today's production for an expected windfall later.If they expect prices to fall in the future, suppliers may sell off more of their inventories today.Shift Factors of SupplyIf taxes go up, costs also increase, and profits go down, leading suppliers to reduce output.Government subsidies increase supply, as they reduce costs of production.From a Supply Table to a Supply CurveTo derive a supply curve from a supply table, you plot each point in the supply table on a graph and connect the points.From a Supply Table to a Supply CurveThe supply curve represents the set of minimum prices an individual seller will accept for various quantities of a good.From a Supply Table to a Supply CurveCompeting suppliers’ entry into the market places a limit on the price any supplier can charge.Individual and Market Supply CurvesThe market supply curve is derived by horizontally adding the individual supply curves of each supplier. From Individual Supplies to a Market Supply, Fig 4-7a, p 93Quantities SuppliedABCDEFGHI (1)Price (in dollars)(2) Ann’s Supply(5)MarketSupply(4)Charlie'sSupply$0.000.501.001.502.002.503.003.504.00012345678001234555000000022013579111415(3)Barry's Supply From Individual Supplies to a Market Supply, Fig 4-7b, p 93Price per cassette (in dollars)CharlieBarryAnnQuantity of cassettes supplied (per week) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16$4.003.50 3.00 2.50 2.00 1.50 1.00 0.50 0 IHGFEDCBAMarket SupplyCAThe Marriage of Supply and DemandSupply and demand come together to determine equilibrium quantity and equilibrium price.Excess Supply and Excess DemandExcess supply –if quantity supplied is greater than quantity demanded, prices tend to fall.Excess demand – prices tend to rise if quantity demanded is greater than quantity supplied.Price AdjustsThe larger the difference between quantity demanded and quantity supplied, the greater the pressure for prices to rise (if there is excess demand) or fall (if there is excess supply.Price AdjustsWhen quantity demanded equals quantity supplied, prices have no tendency to change.BAThe Marriage of Supply and Demand, Fig 4-8, p 96Price per cassette (in dollars)$5.00 4.00 3.50 3.00 2.50 2.00 1.50 1.00SDQuantity of cassettes supplied and demanded (per week) Excess demand1 2 3 4 5 6 7 8 9 10 11 12Excess supplyEEquilibriumEquilibrium is a concept in which opposing dynamic forces cancel each other out.EquilibriumIn supply and demand analysis, equilibrium means that the upward pressure on price is exactly offset by the downward pressure on price.EquilibriumEquilibrium price is the price toward which the invisible hand drives the market.Equilibrium quantity is the amount bought and sold at the equilibrium price.What Equilibrium Isn'tEquilibrium isn’t a state of the world—it's a characteristic of the model used to look at the world.Equilibrium isn’t inherently good or bad—but simply a state in which dynamic pressures offset each other.Desirable Characteristics of Supply/Demand EquilibriumConsumer surplus – the distance between the demand curve and the price the consumer pays is net benefit to consumers.Desirable Characteristics of Supply/Demand EquilibriumProducer surplus - if a producer receives more than the price she would be willing to sell the good for, she receives a net benefit.Desirable Characteristics of Supply/Demand EquilibriumWhat's good about equilibrium is that it makes the combination of consumer and producer surplus as large as it can be.Desirable Characteristics of Supply/Demand EquilibriumMarkets allow trade, thereby leading to an increase in the combination of consumer and producer surplus.Consumer and Producer Surplus, Fig 4-9, p 98PriceSupply Demand Quantity0$1098765432110987654321Producer SurplusConsumer SurplusLost SurplusSupply and DemandEnd of Chapter 4