101 lecture 4 supply and demand
DESCRIPTION
Supply and DemandTRANSCRIPT
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Microeconomics Chapter 4
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The Market Forces of Supply and Demand
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market competitive market quantity demanded law of demand demand schedule demand curve normal good inferior good substitutes complements
Key Termsquantity supplied law of supply supply schedule supply curve equilibrium equilibrium price equilibrium quantity surplus shortage law of supply and demand
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Number
1
2
3
4
5
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Number
1
2
3
4
5
Total Utility
10
15
19
23
25
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Number
1
2
3
4
5
Total Utility
10
15
19
23
25
Marginal Utility Change in Total
Utility
10
5
4
4
2
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Number
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2
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Total Utility
10
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19
23
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Marginal Utility Change in Total
Utility
10
5
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2
Average Utility Total Utility ÷
Number
10.00
7.50
6.33
5.75
5.00
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Market
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Marketwhere
buyers and sellers interact
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Supply and Demand
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Supply and Demand
sellers supply buyers demand
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Competitive Market
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Competitive Market
many buyers and sellers no one has power to
change price
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Ceteris Paribus
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Ceteris Paribus
“all else equal”
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Quantity Demanded QD
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Quantity Demanded QD
amount people are willing and able
to buy
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Law of Demand
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Law of Demandwhen price goes up
quantity demand goes down
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Law of Demandwhen price goes up
quantity demand goes down
when price goes down quantity demand goes up
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Law of Demand
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Law of Demandinverse relationship
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price up - QD down price down - QD up
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Demand Schedule
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Demand Schedule
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Price
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Demand Schedule
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Price
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Demand Schedule
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Demand Schedule
Demand Curve
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Demand Curve
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Demand Curve
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Demand Curve
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Demand Curve
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Demand Curve
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Demand Curve
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Demand Curve
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Demand Curve
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Demand Curve
If I have a schedule I can make a curve
!If I have a curve I
can make a schedule
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Individual Demand Market Demand
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Individual Demand Market Demand
add up all of the individual demand curves
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Price changes !
demand curve does not change
!quantity demanded
changes
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Shift in the Demand CurvePrice does not
change !
demand curve shifts !
quantity demanded changes
![Page 87: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/87.jpg)
Shift in Demand
![Page 88: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/88.jpg)
Shift in DemandIncome
Prices of Related Goods Tastes
Population & Demographics Expected Future Prices
![Page 89: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/89.jpg)
Why does the demand curve slope
downwards?
![Page 90: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/90.jpg)
Why does the demand curve slope
downwards?
Substitution Effect Income Effect
![Page 91: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/91.jpg)
Substitution Effect
![Page 92: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/92.jpg)
Substitution Effect
the good is more or less expensive relative to other goods that are
substitutes.
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Income Effect
![Page 94: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/94.jpg)
Income Effect
the effect of a price change on consumer’s
purchasing power.
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Complements
![Page 96: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/96.jpg)
Complementsgoods or services
that are used together
![Page 97: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/97.jpg)
Complements
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Complements
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Complements
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Substitutes
![Page 102: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/102.jpg)
Substitutes
goods or services that can be used for the same purpose
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Normal Good
![Page 105: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/105.jpg)
Normal Good
Demand increases as income rises and
decreases as income falls
![Page 106: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/106.jpg)
Inferior Good
![Page 107: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/107.jpg)
Inferior Good
Demand decreases as income rises and
increases as income falls
![Page 108: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/108.jpg)
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Quantity Supplied QS
![Page 110: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/110.jpg)
Quantity Supplied QS
amount people are willing and able
to sell
![Page 111: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/111.jpg)
Law of Supply
![Page 112: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/112.jpg)
Law of Supplywhen price goes up
quantity supplied goes up
![Page 113: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/113.jpg)
Law of Supplywhen price goes up
quantity supplied goes up
when price goes down quantity supplied goes down
![Page 114: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/114.jpg)
Law of Supply
![Page 115: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/115.jpg)
Law of Supplydirect relationship
!
price up - QS up price down - QS down
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Supply Schedule
![Page 118: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/118.jpg)
Supply Schedule
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Supply Curve
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If I have a schedule I can make a curve If I have a curve I
can make a schedule
![Page 137: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/137.jpg)
Individual Supply Market Supply
![Page 138: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/138.jpg)
Individual Supply Market Supply
add up all of the individual supply curves
![Page 139: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/139.jpg)
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Movement along the Supply Curve
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Movement along the Supply Curve
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Movement along the Supply Curve
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Movement along the Supply Curve
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Movement along the Supply Curve
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Price changes !
supply curve does not change
!quantity supplied
changes
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Shift in Supply
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Shift in SupplyInput prices Technology
Number of Sellers Expected Future Prices
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Quantity Demanded < Quantity Supplied
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Quantity Demanded < Quantity Supplied
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QS - QD = 7 - 3 = 4
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QS - QD = 7 - 3 = 4
Price is too high too many pizzas
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QS - QD = 7 - 3 = 4
Price is too high too many pizzas
lower price
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Shortagewhere market price is below equilibrium price
Quantity Demanded > Quantity Supplied
Supply
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QS QD
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Shortagewhere market price is below equilibrium price
Quantity Demanded > Quantity Supplied
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QS - QD = 2 - 8 = -6
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Shortagewhere market price is below equilibrium price
Quantity Demanded > Quantity Supplied
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QS - QD = 2 - 8 = -6
Price is too low not enough pizzas
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Shortagewhere market price is below equilibrium price
Quantity Demanded > Quantity Supplied
Supply
Demand
QS QD
QS - QD = 2 - 8 = -6
Price is too low not enough pizzas
raise price
![Page 224: 101 lecture 4 supply and demand](https://reader033.vdocuments.us/reader033/viewer/2022060115/55777949d8b42a56728b4e96/html5/thumbnails/224.jpg)
Three Steps
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Three Steps1. Does the event shift supply or demand or both? !
2. Which direction is the shift? !
3. Diagram new equilibrium