supply, demand & market equilibrium principles of microeconomics boris nikolaev
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Supply, Demand & Market Equilibrium Principles of Microeconomics Boris Nikolaev. Why is it that…. … the president of USF earns less than the football coach? [ link ] … 30-sec Super Bowl ad costs $3 million in 2011 ? [ link ] [ link ] - PowerPoint PPT PresentationTRANSCRIPT
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Supply, Demand&
Market EquilibriumPrinciples of Microeconomics
Boris Nikolaev
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Why is it that…
… the president of USF earns less than the football coach? [link]
… 30-sec Super Bowl ad costs $3 million in 2011? [ link ] [link]
… oil reached $147/barrel in the summer of 2008, then dropped to $30, and now is on the rise again.
… people are willing to pay $600 for a pound of coffee?
…economists earn more than most other college majors?• most lucrative college majors [ link ]
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We owe this to…
Alfred Marshall
Pric
e (in
depe
nden
t var
iabl
e)
Quantity (dependent variable)
S
D
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How much?
Qd (how much you consume)= f ( … )
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Pric
e
Quantity
The Demand Curve
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Are you willing to pay $50 for a cup of coffee?
http://www.youtube.com/watch?v=1Q7IYpLYQ7Q (what is it?)http://en.wikipedia.org/wiki/Kopi_Luwak#Economics (wiki article)http://www.volcanicacoffee.com/estate-coffee/kopi-luwak-coffee.htm (buy it here)
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Demand
• Demand (schedule or curve)
• Quantity Demanded
• The Law of Demand: As price goes up, quantity demanded goes ________.
• Individual vs Market Demand
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Shifts in D vs Qd
A
B
C
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Shifts in Demand
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Determinants of Demand(the “other things” we held constant before)
• Tastes / Preferences [link] [link]• Number of buyers• Income
• Normal Goods• Inferior Goods
• Prices of related goods• Substitutes• Complementary
• Expectations • Change in availability of credit [link]
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What!?
[ click here to find out ]
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Supply
• Supply (schedule or curve)
• Quantity Supply
• The Law of Supply: As price goes up, quantity supplied goes ________.
• Individual vs Market Supply
[link]
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Shifts in S vs Qs
A
BC
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Shifts in Supply
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Determinants of Supply(the “other things” we held constant before)
• Input Prices• Technology• Taxes + Subsidies• Prices of related goods• Expectations• Number of sellers• Available credit• Nature (agriculture)
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Markets & Prices• The problem of knowledge
• dispersed• wrong• tacit
• Markets as a solution to the knowledge problem.
• What do relative prices represent?• Why are profits important?
F. Hayek
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Market Equilibrium
The law of supply and demand
EquilibriumQs = Qd P*
Q*
S
D
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P > P*
P*
Q*
P
S
D
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P < P*
P*
Q*
S
D
P
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Finding Equilibrium P* and Q*
Consider the following supply and demand curves:
P=100-Q P=10+2Q
1. Which curve represents demand? supply?2. What is equilibrium P* and Q*?3. What kind of a shift P=200-Q reflects?4. What about P=100-2Q?5. What would be the effect on P* and Q*?
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How did oil prices reach $147/barrel?Then plummeted back to $30…and now are on the rise again.
1973 – Arab Israeli WarOPEC restricts supply
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Why is it hard to predict oil prices?• Organization of Petroleum Exporting Countries
http://www.opec.org/home/
• Speculationo Availabilityo Extractiono Political unresto Investment ($)
• BBC article on oil prices: http://news.bbc.co.uk/2/hi/business/7425489.stm
• George Bush on oil: http://www.thedailyshow.com/watch/thu-march-6-2008/crude-awakening
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The Fallacy of Supply and Demand
• http://www.youtube.com/watch?v=FaO3aGmuNFc (D. Ariely)
Are people like ducklings?
http://www.youtube.com/watch?v=FaO3aGmuNFc (D. Ariely)