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NOW PLAYING: MARKET ANALYSIS

NOW PLAYING: MARKET ANALYSIS. Presented by: Mr. Kuzmich Economics. Only two things can change the relative scarcity of a product. Supply Demand. How do changes in supply or demand affect equilibrium prices and quantities exchanged?. Quantity Exchanged. It’s simple.

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NOW PLAYING: MARKET ANALYSIS

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  1. NOW PLAYING:MARKET ANALYSIS Presented by: Mr. Kuzmich Economics

  2. Only two things can change the relative scarcity of a product • Supply • Demand

  3. How do changes in supply or demand affect equilibrium prices and quantities exchanged?

  4. Quantity Exchanged • It’s simple. • An increase in supply or demand causes an increase in quantity exchanged. • A decrease in supply or demand causes a decrease in quantity exchanged.

  5. Equilibrium Price • It’s simple. • An increase in supply or a decrease in demand puts downward pressure on prices. • A decrease in supply or an increase in demand puts upward pressure on prices.

  6. Changes in Supply or Demand

  7. Changes in relative scarcity • A product becomes morescarce if: • demand increases • supply decreases • price will rise • A product becomes lessscarce if: • demand ____________ • supply _____________ • price will _________

  8. Changes in relative scarcity • A product becomes morescarce if: • demand increases • supply decreases • price will rise • A product becomes lessscarce if: • demand decreases • supply increases • price will fall

  9. Three Steps of Market Analysis • Identify the Market • Product, place, time • Identify the change • Supply or demand, increase or decrease? • Effect on relative scarcity, price, quantity

  10. Major rule: One event causes either demand or supply to change, never both.

  11. Predicting the Future • The world market for oil, 2005. Iraq oil wells come back on line. • Demand or supply? Increase or decrease? • Relative scarcity, price, quantity?

  12. Predicting the Future • In SF in 2006, the market for 49er stuff when the 49ers, under the amazing leadership of Alex Smith, football playing economist, and the 49ers win the Super Bowl. • Demand or supply? Increase or decrease? • Relative scarcity, price, quantity?

  13. Explaining the present • Market, gasoline in California, Summer, 2005 • OPEC increases supply • Californians • buy more, bigger, more powerful cars and drive them farther and faster • avoid mass transit • Some oil refineries are shut down for maintenance • Relative scarcity and price?

  14. What has caused these prices to change? • Computer prices fall. • It is September and peach, berry, and other fruit prices rise. • The price of a major league baseball star’s rookie card is falling. • The price of artichokes rises. • Saudi king dies and price of oil rises. • Dukes of Hazzard comes out and price of 1969 Dodge Charger increases. • The price of yo-yo’s go up and down. • The price of ancient statues falls.

  15. Explaining the past • Europe in 1510. The market for spices after da Gama found a less costly path to spices. • Supply or demand? Increase or decrease? • Relative scarcity, price, quantity

  16. Explaining the past • Sacramento in 1850. The market for pick axes and pans. • Supply or demand? Increase or decrease? • Relative scarcity, price, quantity

  17. PRICE CONTROLS

  18. A Price Ceiling is a maximum legal price BELOW the equilibrium. It provides perverse incentives, causing a shortage. Ceiling, below, shortage (CBS)

  19. Price controls (ceiling) • Assume that a market is in equilibrium and there is no change in supply or demand; relative scarcity has not changed. • A government sets a legal price below the equilibrium (price ceiling) • Buyers will want to buy _________ • Suppliers will want to supply ________ • There is a (surplus or shortage). • Rent controls, doctors, prescription drugs

  20. A Price Floor is a minimum legal price ABOVEthe equilibrium It provides perverse incentives, causing a surplus. Floor, above, surplus (FAS)

  21. Price controls (floor) • Assume that a market is in equilibrium and there is no change in supply or demand; relative scarcity has not changed. • A government sets a legal price above the equilibrium • Buyers will want to buy _________ • Suppliers will want to supply ________ • There is a (surplus or shortage). • Minimum wage, agricultural price supports

  22. Price controls (natural disaster) • The market for lumber in Los Angeles, after an earthquake destroys many buildings • Demand has increased. • Lumber is now relatively______ scarce. • Price will ______________

  23. Price controls (natural disaster, ceiling) • To avoid “price gouging” government sets legal price below new higher equilibrium price. • At lower price, demanders demand ____ • At lower price, suppliers supply ______ • The price ceiling causes a ________

  24. Example • Maximum rent on apartments set below equilibrium • Lower price will have what effect on prospective demanders? • Lower price will have what effect on prospective suppliers? • Price below market clearing price will cause a ____________.

  25. What will happen to the price of energy in California? • The population increases. • People have more computers. • Many power plants are shut down for maintenance. • The snow pack in the Sierras is lower than normal.

  26. Let’s save the energy consumers of California • Impose a price ceiling (a legal price below the equilibrium) • As the price falls, the incentives for suppliers and demanders changes. • With a lower price, suppliers will supply ________ • With a lower price, demanders will want to buy _________ • There will be a __________

  27. Let’s save the energy consumers of California Rolling Blackouts

  28. Market Analysis

  29. How do changes in demand affect quantity supplied? • A change in quantity supplied occurs in the short-run as suppliers respond to a change in the price of the product with no change in WAGTIPS. • If demand increases, price will rise, and suppliers will attempt to squeeze more out of their resources with no change in WAGTIPS. • If demand falls, price will fall, causing suppliers to supply less, with no change in WAGTIPS. • Change in demand causes a change in price which causes a change in quantity supplied, no change in WAGTIPS.

  30. How do changes in supply affect quantity demanded? • A change in quantity demanded occurs as buyers respond to a change in the price of the product with no change in TIPSE. If supply increases, price will fall and buyers will buy more with no change in TIPSE. • If supply decreases, price will rise and buyers will buy less with no change in TIPSE. • Change in supply causes a change in price which causes a change in quantity demanded with no change in TIPSE.

  31. Questions • Demand or supply? • Increase or decrease? • Equilibrium price? • Quantity supplied? • Quantity demanded? • Quantity exchanged?

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