Supply, Demand & Market Equilibrium Principles of Microeconomics Boris Nikolaev.

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Presentation transcript:

Supply, Demand & Market Equilibrium Principles of Microeconomics Boris Nikolaev

Why is it that… … the president of USF earns less than the football coach? [link]link … 30-sec Super Bowl ad costs $3 million in 2011? [ link ] [link]link … oil reached $147/barrel in the summer of 2008, then dropped to $30, and now is on the rise again. … people are willing to pay $600 for a pound of coffee? …economists earn more than most other college majors? most lucrative college majors [ link ]link

We owe this to… Alfred Marshall Price (independent variable) Quantity (dependent variable) S D

How much? Q d (how much you consume) = f ( … )

Price Quantity The Demand Curve

Are you willing to pay $50 for a cup of coffee? (what is it?) (wiki article) (buy it here)

Demand Demand (schedule or curve) Quantity Demanded The Law of Demand: As price goes up, quantity demanded goes ________. Individual vs Market Demand

Shifts in D vs Q d A B C

Shifts in Demand

Determinants of Demand (the “other things” we held constant before) Tastes / Preferences [link] [link]link Number of buyers Income Normal Goods Inferior Goods Prices of related goods Substitutes Complementary Expectations Change in availability of credit [link]link

What!? [ click here to find out ]here

Supply Supply (schedule or curve) Quantity Supply The Law of Supply: As price goes up, quantity supplied goes ________. Individual vs Market Supply [link]link

Shifts in S vs Qs A B C

Shifts in Supply

Determinants of Supply (the “other things” we held constant before) Input Prices Technology Taxes + Subsidies Prices of related goods Expectations Number of sellers Available credit Nature (agriculture)

Markets & Prices The problem of knowledge dispersed wrong tacit Markets as a solution to the knowledge problem. What do relative prices represent? Why are profits important? F. Hayek

Market Equilibrium The law of supply and demand Equilibrium Q s = Q d P* Q* S D

P > P* P* Q* P S D

P < P* P* Q* S D P

Finding Equilibrium P* and Q* Consider the following supply and demand curves: P=100-QP=10+2Q 1.Which curve represents demand? supply? 2.What is equilibrium P* and Q*? 3.What kind of a shift P=200-Q reflects? 4.What about P=100-2Q? 5.What would be the effect on P* and Q*?

How did oil prices reach $147/barrel? Then plummeted back to $30…and now are on the rise again – Arab Israeli War OPEC restricts supply

Why is it hard to predict oil prices? Organization of Petroleum Exporting Countries Speculation o Availability o Extraction o Political unrest o Investment ($) BBC article on oil prices: George Bush on oil: /crude-awakening /crude-awakening

The Fallacy of Supply and Demand (D. Ariely) Are people like ducklings? (D. Ariely)