supply and demand the determinants of supply and demand

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Supply and Demand The determinants of supply and demand

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Page 1: Supply and Demand The determinants of supply and demand

Supply and Demand

The determinants of supply and demand

Page 2: Supply and Demand The determinants of supply and demand

Plot the following

Price Quantity

$9 28 3

7 5

6 9

What kind of curve is it?

Page 3: Supply and Demand The determinants of supply and demand

PriceP

Quantity DemandedQd

$9 28 3

7 5

6 9P

Q

9

2

8

3

7

5

6

9

D

Qd just a point on thecurve.

is the entirecurve.

To be on thedemand curvea person mustbe WILLINGand ABLE topurchase theproduct or service.

Page 4: Supply and Demand The determinants of supply and demand

PriceP

Quantity DemandedQd

$9 28 3

7 5

6 9P

Q

9

2

8

3

7

5

6

9

D

Qd just a point on thecurve.

is the entirecurve.

There is an___________relationshipbetween priceand quantity.

inverse

Page 5: Supply and Demand The determinants of supply and demand

Q

9

2

8

3

7

5

6

9

D

Quantity demanded--it is the amount that will be purchased at a specific P.

Definitions:

Demand--it is a schedule of quantities of goods and services that will be purchased at various prices at a specified time, all other things held constant.

Page 6: Supply and Demand The determinants of supply and demand

Q

9

2

8

3

7

5

6

9

D

Qd just a point on thecurve.

is the entirecurve.

Price changes Quantity Demanded

Price does not change demand

Page 7: Supply and Demand The determinants of supply and demand

The 8 Determinants of Demand

There are 8 reasons or factors that can change a demand curve.

1. Number of consumers.

Page 8: Supply and Demand The determinants of supply and demand

Eight Determinants of Demand:

1. Number of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

As people’s incomes go up demand fornormal goods increases. As people’s incomego down, demand for normal goods decrease.

As people’s incomes go up demand forinferior goods decreases. As people’s incomego down, demand for inferior goods increases.

Page 9: Supply and Demand The determinants of supply and demand

Eight Determinants of Demand:

1. Number of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

4. Preferences

Page 10: Supply and Demand The determinants of supply and demand

Eight Determinants of Demand:

1. # of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

4. Preferences

5. Price of related products: Substitutes

Page 11: Supply and Demand The determinants of supply and demand

Eight Determinants of Demand:

1. # of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

4. Preferences

5. Price of related products: Substitutes

6. Price of related products: Complements

Page 12: Supply and Demand The determinants of supply and demand

Eight variables that shift Demand:

1. # of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

4. Preferences

5. Price of related products: Substitutes

6. Price of related products: Complements

7. Expected future of prices by consumers

8. Expected future of income by consumers

Page 13: Supply and Demand The determinants of supply and demand

Supply Curve

Determinants of supply

Page 14: Supply and Demand The determinants of supply and demand

Price Quantity Supplied

$3 2

$4 3

$5 4

$6 5

P

Q

$3

2

$4

3

$5

4

$6

5

S

Page 15: Supply and Demand The determinants of supply and demand

Price Quantity Supplied

$3 2

$4 3

$5 4

$6 5

P

Q

$3

2

$4

3

$5

4

$6

5

S

Quantity supplied is just a point on the curve.

Page 16: Supply and Demand The determinants of supply and demand

Price Quantity Supplied

$3 2

$4 3

$5 4

$6 5

P

Q

$3

2

$4

3

$5

4

$6

5

S

Supply is the entire curve.

Page 17: Supply and Demand The determinants of supply and demand

Price Quantity Supplied

$3 2

$4 3

$5 4

$6 5

P

Q

$3

2

$4

3

$5

4

$6

5

S

There is a_________relationshipbetween Pand Q.

Direct

Page 18: Supply and Demand The determinants of supply and demand

Price Quantity Supplied

$3 2

$4 3

$5 4

$6 5

P

Q

$3

2

$4

3

$5

4

$6

5

S

Only one variablechanges QSand that is_____.

Page 19: Supply and Demand The determinants of supply and demand

Price Quantity Supplied

$3 2

$4 3

$5 4

$6 5

P

Q

$3

2

$4

3

$5

4

$6

5

S

PRICE DOESNOT CHANGESUPPLY!!!!

Page 20: Supply and Demand The determinants of supply and demand

Q

S

Quantity supplied--it is the amount that will be sold at a specific P.

Definitions:

Supply--it is a schedule of quantities of goods and services that will be sold at various prices at a specified time, all other things held constant.

P

Page 21: Supply and Demand The determinants of supply and demand

Determinants of Supply

There are 5 determinants that can change a supply curve.

Page 22: Supply and Demand The determinants of supply and demand

Five determinants of Supply:

1. Number of suppliers

2. Costs

3. Physical Availability of Resources

4. Technology

5. Expected Future Prices by Consumer

Page 23: Supply and Demand The determinants of supply and demand
Page 24: Supply and Demand The determinants of supply and demand

Your market is:

What happens to the market for oranges whenthere is a frost that hits Florida?

P

Q

S

D

P

Q

S1

P1

Q1

Decrease inthe physicalavailabilityof resources.

Oranges

Page 25: Supply and Demand The determinants of supply and demand

Your market is:

What happens to the market for CD’s wheniPods and downloaded music become popular?

Decrease in Preferences.

CD’s

P

Q

S

D

P

Q

D1

P1

Q1

Page 26: Supply and Demand The determinants of supply and demand

Your market is:

What happens to the market for downloadedmusic when the royalties paid to the song artist go up?

Increase incosts.

Downloaded Music

P

Q

S

D

P

Q

S1

P1

Q1

Page 27: Supply and Demand The determinants of supply and demand

Your market is:

The U.S. goes through a boom economy, whathappens to the market for steak?

Increase inincomes—Normal goods.

Steak

P

Q

S

D

P

Q

D1

P1

Q1

Page 28: Supply and Demand The determinants of supply and demand

Your market is:

The price of milk doubles; what happens tothe market for cereal?

Price of related product—complement.

Cereal

P

Q

S

D

P

Q

D1

P1

Q1

Page 29: Supply and Demand The determinants of supply and demand

Your market is:

U.S. automakers use robots to produce their cars; what happens to the market for foreign automobiles?

Price of related product—substitute.

Foreign autos

P

Q

S

D

P

Q

D1

P1

Q1

Page 30: Supply and Demand The determinants of supply and demand

Your market is:

The price of airline tickets doubles, what happens to the market for bus tickets?

Increase inprice of related product—Substitute

Bus Tickets

P

Q

S

D

P

Q

D1

P1

Q1

Page 31: Supply and Demand The determinants of supply and demand

Shifts in both Demand and Supply Curves

Page 32: Supply and Demand The determinants of supply and demand

P

Q

S

D

P

Q

D1

P1

Q1

Increase in demand

Increase in supply

S

Q1

Quantitywill definitelyincrease.

Price isIndeterminate

It will eithergo up.

P1

Page 33: Supply and Demand The determinants of supply and demand

PS

D

P

Q

D1

P1

Q1

Increase in demand

Increase in supply

S

Q1

Quantitywill definitelyincrease.

Price isIndeterminate

It stayed thesame.

P1

Page 34: Supply and Demand The determinants of supply and demand

PS

D

P

Q

D1

P1

Q1

Increase in demand

Increase in supply

S

Q1

Quantitywill definitelyincrease.

Price isIndeterminate

It went down.

P1

Page 35: Supply and Demand The determinants of supply and demand

P

Q

S

D

P

Q

What happens to the price and quantity if thereis an increase in demand and a decrease in supply?

Price definitely goes up; Quantity is indeterminate

Page 36: Supply and Demand The determinants of supply and demand

P

Q

S

D

P

Q

What happens to the price and quantity if thereis a decrease in demand and an increase in supply?

Price definitely goes down; Quantity is indeterminate

Page 37: Supply and Demand The determinants of supply and demand

P

Q

S

D

P

Q

What happens to the price and quantity if thereis a decrease in demand and an decrease in supply?

Price is indeterminate; Quantity will definitely decrease

Page 38: Supply and Demand The determinants of supply and demand

Example 1Gillette Shaving Company mails out millions of Fusion shaver handles to households for “free.” Show what happens to the market for the Fusion attachable razor blades?

Determinant:

______________

Price:

___________

Quantity:

____________

Fusion Razor Blades

Page 39: Supply and Demand The determinants of supply and demand

Example 2Salaries of airline pilots go up while the economy goes into a recession. Show what will happen to the market for airline tickets?

Determinant:

______________

Price:

___________

Quantity:

____________

Airline Tickets

Page 40: Supply and Demand The determinants of supply and demand

Example 3New technology starts to be used in producing computer chips, and at the same time, the government publishes a report that long-term exposure to computers causes long-term damage to users’ eyes.

Determinant:

______________Determinant:____________

Price:

___________

Quantity:

____________

Computers

Page 41: Supply and Demand The determinants of supply and demand

Surplus What happens when we look at a price that it

is NOT the equilibrium price?P

Q

S

D

P

Q QsQd

Surplus:

Qs > QdP

Page 42: Supply and Demand The determinants of supply and demand

Shortage

Q

S

D

P

Q QdQs

Shortage:

Qd > Qs

P