1 / 100

Unit Two Supply and Demand

AP Macroeconomics MR. Graham. Unit Two Supply and Demand. Module 5: Supply and Demand: Introduction and Demand. 2. Competitive Market. A market in which there are many buyers and sellers of the same good or service.

ieric
Download Presentation

Unit Two Supply and Demand

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. AP Macroeconomics MR. Graham Unit Two Supply and Demand

  2. Module 5: Supply and Demand: Introduction and Demand 2

  3. Competitive Market • A market in which there are many buyers and sellers of the same good or service. • No individual’s actions have a noticeable effect on the price at which a good or service is sold. • When a market is competitive, its behavior is well described by supply and demand model. 3

  4. Supply and Demand Model • There are five key elements in this model: • The demandcurve • The supply curve • The set of factors that cause the demand curve to shift and the set of factors that cause the supply curve to shift • The market equilibrium, which includes the equilibrium price and equilibrium quantity. • The way the market equilibrium changes when the supply curve or demand curve shifts 4

  5. “Demand” Defined A schedule of quantities of goods or services that will be purchased at various prices, during a specified time period, other things being constant (“ceteris paribus”).

  6. The Demand Schedule and the Demand Curve

  7. Law of Demand Law of Demand A negative, or inverse, relationship between the price of any good or service and the quantity demanded, holding other factors constant (ceteris paribus) When the price of a good goes up, people buy less of it, other things being equal. When the price of a good goes down, people buy more of it, other things being equal.

  8. “Quantity Demanded” vs. “Demand” A change in a good’s price leads to a change in quantity demanded (movement along the demand curve)

  9. “Quantity Demanded” vs. “Demand” Whenever there is a change in a ceteris paribus condition, there will be a change in demand • A shift of the entire demand curve • The only thing that can cause the entire curve to move is a change in determinant other than price

  10. “Quantity Demanded” vs. “Demand”

  11. Let us review by using viewing “Quantity Demanded and Demand” from Reffonomics. “Quantity Demanded” vs. “Demand”

  12. Determinants of Demand (8) Number of consumers Income: Normal Goods Tastes and preferences Income: Inferior Goods The prices of related goods: Substitutes The prices of related goods: Complements Expectations: Future Prices Expectations: Future Income

  13. Shifts in Demand (cont'd) D3 D2 The Determinants of Demand Market Size (Number of Consumers) Price Increase in the number of consumers increases demand Decrease in the number of consumers decreases demand D1 Q/Units

  14. Determinants of Demand (8) Number of consumers Income: Normal Goods Tastes and preferences Income: Inferior Goods The prices of related goods: Substitutes The prices of related goods: Complements Expectations: Future Prices Expectations: Future Income

  15. Normal and Inferior Goods Normal Goods Goods for which demand rises as income rises; most goods are normal goods As Y , then demand for normal goods  In economics, the letter “Y” stands for income

  16. Shifts in Demand (cont'd) Increase in income increases demand Decrease in income decreases demand D3 D2 The Determinants of Demand Income: Normal Good Price D1 Q/Units

  17. Determinants of Demand (8) Number of consumers Income: Normal Goods Tastes and preferences Income: Inferior Goods The prices of related goods: Substitutes The prices of related goods: Complements Expectations: Future Prices Expectations: Future Income

  18. Shifts in Demand (cont'd) Hybrid vehicles • Increase in demand SUVs • Decrease in demand D3 D2 The Determinants of Demand Tastes and Preferences Price D1 Q/Units

  19. Determinants of Demand (8) Number of consumers Income: Normal Goods Tastes and preferences Income: Inferior Goods The prices of related goods: Substitutes The prices of related goods: Complements Expectations: Future Prices Expectations: Future Income

  20. Normal and Inferior Goods Inferior Goods Goods for which demand falls as income rises As Y , then demand for inferior goods 

  21. Shifts in Demand (cont'd) D3 D2 The Determinants of Demand Income: Inferior Good Price Decrease in income increases demand Increase in income decreases demand D1 Q/Units

  22. Determinants of Demand (8) Number of consumers Income: Normal Goods Tastes and preferences Income: Inferior Goods The prices of related goods: Substitutes The prices of related goods: Complements Expectations: Future Prices Expectations: Future Income

  23. Shifts in Demand (cont'd) Substitutes Two goods are substitutes when a change in the price of one causes a shift in demand for the other in the same direction as the price change There are millions of products that have substitutes: Soap (Ivory v. Dove) Pizza (Pizza Hut v. Dominos) Cola (Coke v. Pepsi)

  24. Shifts in Demand (cont'd) D2 The Determinants of Demand Price of Related Goods: Substitutes Price Butter and Margarine • Price of both = $2/lb • Price of margarine increases to $3/lb • Demand for butter increases D1 Q/Butter

  25. Determinants of Demand (8) Number of consumers Income: Normal Goods Tastes and preferences Income: Inferior Goods The prices of related goods: Substitutes The prices of related goods: Complements Expectations: Future Prices Expectations: Future Income

  26. Shifts in Demand (cont'd) Complements Two goods are complements when a change in the price of one causes an opposite shift in the demand curve for the other There are millions of products that complement each other: Soap and Shampoo Toothbrush and Toothpaste Shoes and Socks Peanut Butter and Jelly

  27. Shifts in Demand (cont'd) D3 D2 The Determinants of Demand Price of Related Goods: Complements Price Speakers and Amplifiers • Decrease the relative price of amplifiers • Demand for speakers increases Speakers and Amplifiers • Increase the relative price of amplifiers • Demand for speakers decreases D1 Q/Speakers

  28. Determinants of Demand (8) Number of consumers Income: Normal Goods Tastes and preferences Income: Inferior Goods The prices of related goods: Substitutes The prices of related goods: Complements Expectations: Future Prices Expectations: Future Income

  29. Shifts in Demand (cont'd) D3 D2 The Determinants of Demand Expectations: Future Prices Price Expectations of a higher future price will increase demand Expectations of a lower future price will decrease demand D1 Q/Units

  30. Determinants of Demand (8) Number of consumers Income: Normal Goods Tastes and preferences Income: Inferior Goods The prices of related goods: Substitutes The prices of related goods: Complements Expectations: Future Prices Expectations: Income

  31. Shifts in Demand (cont'd) D3 D2 The Determinants of Demand Expectations: Income Price A higher income will increase demand A lower income will decrease demand D1 Q/Units

  32. Shifts in Demand Let us review by using viewing the “Demand Interactive Chart” from Reffonomics.

  33. Module 6: Supply and Demand: Supply and Equilibrium 34

  34. “Supply” Defined A schedule of quantities of goods or services that will be supplied at various prices, during a specified time period, other things being constant (“ceteris paribus”)

  35. The Supply Schedule and the Supply Curve

  36. The Law of Supply Law of Supply The higher the price of a good, the more of that good sellers will make available over a specified time period, other things equal At higher prices, a larger quantity will generally be supplied than at lower prices, all other things held constant. At lower prices, a smaller quantity will generally be supplied than at higher prices, all other things held constant.

  37. “Quantity Supplied” vs. “Supply” What is the difference between Quantity Supplied and Supply?

  38. “Quantity Supplied” vs. “Supply” A change in a good’s own price leads to a change in quantity supplied.

  39. “Quantity Supplied” vs. “Supply” Whenever there is a change in a ceteris paribus condition, there will be a change in supply • A shift of the entire supply curve to the right or to the left • The only thing that can cause the entire curve to move is a change in a determinant other than the good’s own price

  40. Determinants of Supply (6) Number of suppliers Cost of inputs Physical availability of resources Technology and productivity (in long run) Taxes and subsidies Price expectations

  41. Shifts in Supply (cont'd) S3 The Determinants of Supply Number of Suppliers Price S1 S2 Decrease in the number of firms decreases supply Increase in the number of firms increases supply Q/Units

  42. Determinants of Supply (6) Number of suppliers Cost of inputs Physical availability of resources Technology and productivity (in long run) Taxes and subsidies Price expectations

  43. Shifts in Supply (cont'd) S3 S2 The Determinants of Supply Cost of Inputs Price S1 Increase in cost decreases supply Decrease in cost increases supply Q/Units

  44. Determinants of Supply (6) Number of suppliers Cost of inputs Physical availability of resources Technology and productivity (in long run) Taxes and subsidies Price expectations

  45. Shifts in Supply (cont'd) S3 S2 The Determinants of Supply Physical Availability of Resources Price S1 Generally unavailable resources decrease supply Existence or discovery of new deposits of resources increases supply Q/Units

  46. Determinants of Supply (6) Number of suppliers Cost of inputs Physical availability of resources Technology and productivity (in long run) Taxes and subsidies Price expectations

  47. Shifts in Supply (cont'd) S3 S2 The Determinants of Supply Technology and Productivity Price S1 Decreases in productivity decrease supply Improvements in technology or increases in productivity increase supply Q/Units

  48. Determinants of Supply (6) Number of suppliers Cost of inputs Physical availability of resources Technology and productivity (in long run) Taxes and subsidies Price expectations

  49. Shifts in Supply (cont'd) S3 S2 The Determinants of Supply Taxes and Subsidies Price S1 Increases in taxes or decreases in subsidies decrease supply Decreases in taxes or increases in subsidies increase supply Q/Units

More Related