TCO 2 Given a supply schedule, a demand schedule, and a change in one or more determinants of supply...
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TCO 2 Given a supply schedule, a demand schedule, and a change in one or more determinants of supply and demand, graph the supply and demand curves and illustrate the resulting change in the equilibrium price and quantity. • Define supply and demand and show their relationship graphically. • Explain the law of determinants of demand and supply. • Differentiate between a change in quantity demanded (a movement along a fixed demand curve) and a change in demand (a movement of the entire demand curve). • Explain and illustrate how market equilibrium is reached. • Illustrate the movement of the supply and demand curves and the resulting new equilibrium price and quantity. • Define price-elasticity of demand and supply. • Identify the factors that influence price elasticity of demand. • Briefly illustrate the concept of price elasticity of supply
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Transcript of TCO 2 Given a supply schedule, a demand schedule, and a change in one or more determinants of supply...
TCO 2Given a supply schedule, a demand schedule, and a change in
one or more determinants of supply and demand, graph the supply and demand curves and illustrate the resulting change in the equilibrium price and quantity.
• Define supply and demand and show their relationship graphically.
• Explain the law of determinants of demand and supply.• Differentiate between a change in quantity demanded (a
movement along a fixed demand curve) and a change in demand (a movement of the entire demand curve).
• Explain and illustrate how market equilibrium is reached. • Illustrate the movement of the supply and demand
curves and the resulting new equilibrium price and quantity.
• Define price-elasticity of demand and supply.• Identify the factors that influence price elasticity of
demand.• Briefly illustrate the concept of price elasticity of supply
SUPPLY, DEMAND, MARKETSWhat it is, how it works.
Demand
• Consumers willingness and ability to buy various quantities of a good or service at each price in a set of possible prices in a given time period.
Demand is
Law of Demand The quantity demanded of a product is negatively, or inversely, related to its price. This means that consumers will purchase more of a product at lower prices than at higher prices. That is why demand curves always slope downward and to the right.
Determinants of Demand
• Income • Taste and Preferences• Expectations Regarding Future Price• Price of Related Goods• Number of Buyers in the Market
Quantity-Demanded
Consumers willingness and ability to buy a quantity of a good or service at a price in a period of time. The determinant of quantity demanded is the price of the good or service itself.
Demand is based on
Marginal Utility [additional satisfaction]
How this works
# Price
MU MUE
1 $50. 100 2
2 $25. 50 2
3 $10. 20 2
Price
$50.
$25.
$10.
1 2 3
Supply
• Suppliers willingness and ability to offer for sale various quantities of a good or service at each price in a set of possible prices in a given period of time.
Supply is
Law of Supply
• The price and quantity supplied are positively, or directly, related. Producers will supply a larger quantity at higher prices than at lower prices. Thus, the supply curve slopes upward because a higher price is necessary to call for the additional output from suppliers
Determinants of Supply
• Resource Prices/Production Cost• Number of Producers in the Market• Technology• Market Expectations• Subsidies/Taxes
Quantity-Supplied
• Suppliers willingness and ability to produce a quantity of a good or service at a price in a period of time.
Market
Where exchange among buyers and sellers takes place.
A market isDemand
Supply
$
Q
ME $
ME Q
Market Equilibrium
• Quantity-demanded equals quantity-supplied at this price. Supply DOES NOT equal Demand!
• Found where the supply curve crosses the demand curve.
• Markets stay in equilibrium until either Demand or Supply or both change.
Effect of an Increase in Supply on Equilibrium Price
Quantity
DS1
S2
$120,000
$110,000
Price
8,000 10,000 12,000
An increase in supply will cause the equilibrium price to fall.
Effect of Simultaneous Increase in Demand and
Supply on Equilibrium Price
Price
Quantity
D1D2
S1S2
P1, P2
Q1 Q2
Demand and supply increase in equal amounts; quantity increases but price does not change
Price Elasticity
How responsive is quantity to changes in price?
Perfectly Elastic Demand
• Quantity-demanded changes by a larger percent than price changes
• Many substitutes• Large percentage of
budget• Consumers aren’t
particularQ
P
D
Perfectly Inelastic Demand
• Quantity-demanded changes by a smaller percent than price changes
• Few substitutes• Small percentage of
budget• Customers want only
this
P
Q
D
Elasticity & Normal Demand
• Most demand curves are elastic at higher prices and inelastic at lower price ranges.
• How does this reflect the workings of marginal utility?
Elastic Supply
• Quantity-supplied changes by a larger percentage than price changes
• Cost of production low• Resources readily available• Slope of supply curve is very flat
Inelastic Supply
• Quantity-supplied changes by a smaller percent than price changes
• Cost of production is high• Resources are not available• Slope of supply curve is very steep
Every now and then various parts of the US experience a gasoline shortage.
• What does this mean in terms of supply and demand?
• What impact would the price elasticity of both supply and demand have on a gasoline shortage?
Why does a Billionaire Beanie Baby Bear sell for $1000?
• Which determinants of demand are working here?
• Is demand elastic or inelastic?• What determinants of supply are
working here?• Is supply elastic or inelastic?
Spiral cut ham can be purchased for $2.99 a pound at Christmas time.
• What determinants of demand are working here?
• What determinants of supply are working here?
• What do you think the price of spiral cut ham would be in May? Why?
