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1、Supply and DemandChapter 4Laugher CurveQ. What do you get when you cross the Godfather with an economist?A. An offer you cant understand. DemandDemand means the willingness and capacity to pay.DemandPrices are the tools by which the market coordinates individual desires.The Law of DemandQuantity dem
2、anded rises as price falls, other things constant.Quantity demanded falls as prices rise, 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 for goods whose price has gone upT
3、he Demand CurveThe demand curve is the graphic representation of the law of demand.The demand curve slopes downward and to the right.As the price goes up, the quantity demanded goes down.The Demand CurveThe slope tells us that quantity demanded varies indirectlyin the opposite directionwith price.Ot
4、her Things ConstantOther things constant 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
5、 of time)PAQAAA Sample Demand CurveShifts 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 Movemen
6、ts Along a Demand CurveQuantity demanded refers to a specific amount that will be demand per unit of time at a specific price.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 represen
7、tation 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
8、Demanded0D1Change in quantity demanded(a movement along the curve) BPrice (per unit)Quantity demanded (per unit of time)100$2$1200AD0D1Shift in DemandPrice (per unit)Quantity demanded (per unit of time)100$2$1200BAChange in demand(a shift of the curve) 250Shift Factors of DemandShift factors of dema
9、nd are those that cause shifts in the demand curve to the right or left.Shift Factors of DemandShift factors of demand includebut are not limitedto the following:Societys incomeThe prices of other goodsTastesExpectationsShift Factors of DemandA rise in income will increase demand for goods.When the
10、prices of substitute goods fall, you will consume less of the good whose price has not changed.A change in taste will change demand with no 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 p
11、urchases today.The 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.T
12、he 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 o
13、n the demand table.From a Demand Table to a Demand CurveThe curve represents the maximum price that you will for various quantities of a goodyou will happily pay less.Price per cassette (in dollars) A Demand CurveQuantity of cassettes demanded (per week)12345678910111213$6.005.00 4.00 3.00 2.00 1.00
14、 .50 03.50EDCBFAFrom a Demand Table to a Demand CurvePrice per cassetteABCDE A Demand TableCassette rentals demanded per week$0.50 1.002.003.004.0098642 Demand for cassettesGIndividual and Market Demand GoodsA market demand curve is the horizontal sum of all individual demand curves.This is determin
15、ed by adding the individual demand curves of all the demanders.Individual and Market Demand GoodsReal world sellers do not add up individual demand curves.Individual and Market Demand GoodsThey estimate total market demand for their product which becomes smooth and downward sloping curve.Individual
16、and Market Demand GoodsThe demand curve is downward sloping for the following reasons:At lower prices, existing demanders buy more.At lower prices, new demanders enter the market.From Individual Demandsto a Market(1)Price per cassette$.0.501.001.502.002.503.003.504.00(2)Alices demand(3)Bruces demand
17、(2)Cathys demand(3)Market demand98765432654321001100000016141197532ABCDEFGHQuantity of cassettes demanded per week2CathyBruceAliceDACEFG$4.00 3.503.002.502.001.501.000.500Price per cassette (in dollars)46810121416BSupplyIndividuals control the factors of production.Factors of production are the reso
18、urces 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 t
19、ransform 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 SupplyT
20、he 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 Su
21、pply 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 directlyin the same directionwith the price.Quantity supplied (per unit of time)0SAPrice (per unit)PAQAA Sample Supply CurveS
22、hifts 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 chang
23、e 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.Shif
24、ts in Supply Versus Movements Along a Supply CurveChanges in price causes changes in quantity supplied represented by a movement along a supply curve.Shift in SupplyPrice (per unit)Quantity supplied (per unit of time)S0Shift in Supply(a shift of the curve)S1$15AB1,2501,500Change in quantity supplied
25、 (a movement along the curve)Change in Quantity Supplied Price (per unit)Quantity supplied (per unit of time)S0$15A1,2501,500BShift 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 sh
26、ift 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 go up, then profits go down, and
27、the incentive to supply also goes down.If costs go up substantially, the firm may even shut down.Shift Factors of SupplyTechnology makes costs go down, profits go up, thus the incentive to supply also goes up.This is especially true when technology replaces labor.Shift Factors of SupplyIf they expec
28、t prices to rise in the future, suppliers may store todays 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 go up, and profits go down, leading suppliers to
29、reduce output.If government subsidies go up, costs go down, and profits go up, leading suppliers to increase output.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 Su
30、pply 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
31、market supply curve is derived by horizontally adding the individual supply curves of each supplier.From Individual Supplies to a Market SupplyQuantities SuppliedABCDEFGHI (1)Price (in dollars)(2) Anns Supply(5)MarketSupply(4)CharliesSupply$0.000.501.001.502.002.503.003.504.0001234567800123455500000
32、0022013579111415(3)Barrys Supply 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16From Individual Supplies to a Market SupplyPrice per cassette (in dollars)CharlieBarryAnnQuantity of cassettes supplied (per week)$4.003.50 3.00 2.50 2.00 1.50 1.00 0.50 0 IHGFEDCBAMarket SupplyCAThe Marriage of Supply and Demand
33、The English historian Thomas Carlyle once said:“Teach any parrot the words supply and demand and youve got an economist.”The Dynamic Laws of Supply and DemandSupply and demand come together to determine equilibrium quantity and equilibrium price.Excess Supply and Excess DemandExcess supply prices te
34、nd to fall if quantity supplied is greater than quantity demanded.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
35、excess demand) or fall (if there is excess supply.Price AdjustsWhen quantity demanded equals quantity supplied, prices have no tendency to change.AThe Marriage of Supply and DemandPrice 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) CExcess demand123456789101112Excess supplyExcess supplyBEEquilibriumEquilibrium is a concept in which opposing dynamic forces pushing cancel each other out.EquilibriumIn supply and demand analysis, equilibrium means that the upward pressure on price is exactly offset by the downward
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