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DEMAND AND SUPPLY

DEMAND AND SUPPLY. Elasticity & Practise. Demand & Supply elasticity Graphs for demand and supply Market equilibrium exercises. Demand & Supply elasticity

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DEMAND AND SUPPLY

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  1. DEMAND AND SUPPLY Elasticity & Practise

  2. Demand & Supply elasticity • Graphs for demand and supply • Market equilibrium exercises

  3. Demand & Supply elasticity Economists noticed that certain relationships exist between price and quantity demanded and supplied, while other things remaining constant. The reactions (sensibilities) of demand and supply for price changes are called price elasticity. Elasticity is a measure of the relationship between quantity demanded or supplied and another variable, such as price or income, which affects the quantity demanded or supplied. Producers calculate elasticity because of its influence on the firm’ revenue (= Output = Price x Quantity)

  4. Demand & Supply elasticity Elastic demand or supply curves indicate that the quantity demanded or supplied responds to price changes in a greater than proportional manner. An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied.

  5. Demand elasticity Price Elasticity of demand measures the degree of responsiveness of the quantity demanded of a commodity to change in its price. Thus its measure depends upon comparing the percentage change in the price with the resultant percentage change in the quantity demanded.

  6. Different demand elasticity curves

  7. Supply elasticity

  8. Supply elasticity

  9. Supply elasticity

  10. Supply elasticity

  11. Supply elasticity

  12. Supply elasticity

  13. 2. Drawing Demand & Supply curves Exercise 1. Company of friends – Tony, Martha, Theo and Anna, went for a walk at the weekend. While walking they felt hungry. So they were happy to meet the pies saleswoman. Tony wanted to eat and would buy a pie even at the price 5€. Theo had not much money and would buy the pie priced not more than 2€. Martha didn’t enjoy potatoes pies and would buy it at price 1€ only. Anna wanted to buy a pie at the price of 3€. Construct their demand curve.

  14. 2. Drawing Demand & Supply curves Exercise 2. There are 3 companies at the local pie market. Their production is the following (table1): Construct their supply curve.

  15. 3. Demand & Supply functions and market equilibrium Exercise 3.1. The demand and supply of good are described by the equations: • Qd = 600 – 25P • Qs = 100 + 100P Find the equilibrium parameters in the market for this product.

  16. 3. Demand & Supply functions and market equilibrium Exercise 3.2. The demand and supply of good are described by the equations: • Qd = 600 – 25P • Qs = 100 + 100P If the government set maximal price of 3€ per unit for this commodity, what would be the situation at the market?

  17. 3. Demand & Supply functions and market equilibrium Price controls are government-mandated legal minimum or maximum prices set for specified goods, usually implemented as a means of direct economic intervention to manage the affordability of certain goods. Governments most commonly implement price controls on staples, essential items such as food or energy products. 1. Price ceiling is the legal maximum price for a good or service. 2. Price floor is the legal minimum price.

  18. A price ceiling creates a shortage when the legal price is below the market equilibrium price, but has no effect on the quantity supplied if the legal price is above the market equilibrium price. Shortage causes consumers to compete vigorously for the limited supply. Supply is limited because suppliers are not getting the prices that would allow them to earn a profit.

  19. Since supply is proportional to price, a price floor creates excess supply if the legal price is above the market price. Suppliers are willing to supply more at the price floor than the market wants at that price.

  20. 3. Demand & Supply shifts Exercise 4.1. What would be changed at buckwheat grain’ demand if: • This year's buckwheat harvest is very high. • Buckwheat prices increased at 20% because of customs duty. • Customs duty for buckwheat import would be increased for 15% 2 months later. • The rice price raised twice. • The wages in the city raised for 30%. • Butter price fall significantly.

  21. 3. Demand & Supply shifts Exercise 4.2. What would be changed at buckwheat grain’ supply if: • This year's buckwheat harvest is very high. • Insecticides’ prices increased at 20% because of customs duty. • Customs duty for buckwheat export is increased for 15%. • The floor wages in the country raised for 30%. • The wages in the village raised for 30%. • 3 new producers appeared in the city. • Organized camping for 300 scouts appeared near the village.

  22. 3. Demand & Supply shifts Exercise 5. What good demand is more price elastic (choose 1 variant): 1. Sugar;marshmallow; jam 2. Shoes; jewelry; cocktail dresses 3. Vitamin C tablets; insulin; tonometer 4. Bread; tuna; black caviar 5. Tour to Ibiza island; metro; taxi

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