Markets, Demand and Supply. Economic Systems n Classifying economic systems < methods of classification < classification by degree of government control.

Slides:



Advertisements
Similar presentations
DEMAND The relationship between demand and priceThe relationship between demand and price –the law of demand –the income effect –the substitution effect.
Advertisements

The market mechanism Outline Outline 1. Introduction 1. Introduction 2. Markets versus planning 2. Markets versus planning 3. Demand and supply 3. Demand.
Chapter 2 The market mechanism. Economic Systems Classifying economic systems – methods of classification – classification by degree of government control.
Demand and Supply Analysis. Demand and supply analysis The price mechanism: effect of a rise in demand the goods market The price mechanism: effect of.
Markets, Demand and Supply
Demand and supply analysis. The demand curve The demand curve: The demand for potatoes (monthly)
Demand and supply analysis
CHAPTER 3 Market Equilibrium. CHAPTER 3 Market Equilibrium.
Demand and Supply Professor Heather Grob ECN101.
Lecturer : Muchdie, PhD in Economics  PhD in Economics, 1998, Dept. of Economics, The University of Queensland, Australia.  Post Graduate Diploma in.
Comparative Statics Analysis
The market system Outline Outline 1. Introduction 1. Introduction 2. Markets versus planning 2. Markets versus planning 3. The market mechanism 3. The.
Chapter 2: Economic Systems & Resource Allocation
THE PRICE SYSTEM A major discovery of 18 th century economists was that the price system is a social control mechanism--a mechanism that coordinates individual.
Market mechanism DEMAND/SUPPLY. The Circular Flow of Economic Life Products Market Factors Market HouseholdsBusinesses Supply of L,L,C Payments for L,
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
1 © 2010 South-Western, a part of Cengage Learning Chapter 3 Market Demand and Supply Microeconomics for Today Irvin B. Tucker.
Prepared by: Jamal Husein C H A P T E R 2 © 2005 Prentice Hall Business PublishingSurvey of Economics, 2/eO’Sullivan & Sheffrin Supply, Demand, and Market.
3 DEMAND AND SUPPLY. © 2012 Pearson Addison-Wesley Equilibrium is a situation in which opposing forces balance each other. Equilibrium in a market occurs.
1. absolute advantage 2. capital 3. command economy.
Chapter 3 Where Prices Come From: The Interaction of Demand and Supply
Harcourt Brace & Company Chapter 4 The Market Forces of Supply and Demand.
Chapter ThreeCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall. 1 Chapter 3 Supply and Demand.
Demand, Supply, & Market Equilibrium Chapter 3. Demand A schedule or curve that shows the various amounts of a product that consumers are willing and.
1 Chapter 3 Market Supply and Demand ©2002 South-Western College Publishing Key Concepts Key Concepts Summary Practice Quiz Internet Exercises Internet.
Demand, Supply & Market Equilibrium
Supply and Demand The Basics.
Supply and Demand. Supply and Demand Demand Relationship between demand and price  the law of demand  the income effect  the substitution effect The.
Topic 2 (a) Demand & Supply Module 2 Topic 1. Demand & Supply 1. Demand 2. Supply 3. Market Equilibrium 4. Consumer & Producer Surplus.
University of Greenwich Business school MSc in Financial Management and Investment Analysis.
© 2002 Prentice Hall Business PublishingPrinciples of Economics, 6/eKarl Case, Ray Fair 3 Prepared by: Fernando Quijano and Yvonn Quijano Demand, Supply,
Supply and Demand Chapter 3 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
Learning Objectives This chapter introduces the notions of supply and demand and shows how they operate in competitive markets for individual commodities.
ECON 101: Introduction to Economics - I Lecture 3 – Demand and Supply.
Demand, Supply, and Market Equilibrium Chapter 3 Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
Module Supply and Demand: Supply and Equilibrium
Supply and Demand 101. A Basic Supply and Demand Curve The vertical axis is PRICE The horizontal axis is QUANTITY The Demand curve slopes down and to.
Market Fundamentals Frederick University Main Economic Problems Questions What and how much How For Whom Problems Efficiency in allocation Efficiency.
Unit 3: Microeconomics SSEMI3 The student will explain how markets, prices, and competition influence economic behavior. a. Identify and illustrate on.
 As the price of a good or service that producers are willing and able to offer for sale during a certain period of time rises (or falls), the quantity.
PowerPoint Slides by Robert F. BrookerHarcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Managerial Economics in a Global Economy.
Macroeconomics CHAPTER 3 Supply and Demand PowerPoint® Slides by Can Erbil © 2004 Worth Publishers, all rights reserved.
DEMAND The basic law of demand states that as the price of a good falls people will buy more of it. (Certainly Michael O’Leary of RyanAir believes in this.
10/15/ Demand, Supply, and Market Equilibrium Chapter 3.
Market equilibrium  Outline 1. Demand and supply 1. Demand and supply 2. The interaction of demand & supply 2. The interaction of demand & supply equilibrium.
Economic Issues. Economics What is Economics? Macroeconomics vs. Microeconomics Demand and Supply.
CH. 6 MARKET FORCES. ESSENTIAL QUESTION  Essential Question: How do the laws of supply and demand interact to establish market equilibrium in a perfectly.
# McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Demand, Supply, and Market Equilibrium 3.
3 Demand and Supply © 2013 Pearson Australia After studying this chapter, you will be able to ■Describe a competitive market and think about a price.
3 CHAPTER Demand and Supply © Pearson Education 2012 After studying this chapter you will be able to:  Describe a competitive market and think about.
Demand and Supply Krugman Section Modules 5-7. Demand demand is a schedule that shows the various amounts of a product consumers are WILLING and ABLE.
Chapter ThreeCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall. 1 Chapter 3 Supply and Demand.
1. Markets, Demand and Supply. Economic Systems Classifying economic systems –methods of classification –classification by degree of government control.
Lecture 1 Required Reading: Sloman & Garratt (2012) Chapter 1 Introduction to Economics.
Demand and supply analysis Market equilibrium and Efficiency.
MICROECONOMICS Chapter 3 Demand and Supply
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 1 Managerial Economics.
1 Fig. 1 The Demand Curve Number of Bottles per Month Price per Bottle A B $ D 40,00060,000 At $2.00 per bottle, 60,000 bottles are demanded (point.
1 Chapter 3 Market Supply and Demand ©2002 South-Western College Publishing Key Concepts Key Concepts Summary Practice Quiz Internet Exercises Internet.
Graphing using Demand & Supply Analysis Ch. 4,5,6 Economics.
Demand Demand is a schedule or curve that shows the various amounts of a product that consumers will buy at each of a series of possible prices during.
Demand The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period The Law of Demand: ‘there is.
Microeconomics The purpose of this section is to identify and explain the importance of markets and the role played by demand and supply. The failure of.
Business in Competitive Markets.
Supply and Demand The Basics.
Supply and Demand The Basics.
Lecturer: KEM REAT Viseth, PhD (Economics)
The Model of Supply and Demand
Dr. Michelle Commosioung
Supply and Demand January 14, 2015.
Presentation transcript:

Markets, Demand and Supply

Economic Systems n Classifying economic systems < methods of classification < classification by degree of government control F command economies F free-market economies F mixed economies < other classifications F the informal economy F the not-for profit sector n Classifying economic systems < methods of classification < classification by degree of government control F command economies F free-market economies F mixed economies < other classifications F the informal economy F the not-for profit sector

Economic Systems n The command economy < features of a command economy < planning F consumption and investment F matching of inputs and outputs F distribution of output n Advantages of a command economy < high investment, high and stable growth < social goals pursued < low unemployment n The command economy < features of a command economy < planning F consumption and investment F matching of inputs and outputs F distribution of output n Advantages of a command economy < high investment, high and stable growth < social goals pursued < low unemployment

Economic Systems n Problems of a command economy < problems of gathering information < expensive to administer < inefficient allocation of resources F inappropriate incentives F no system of prices shortages and surpluses lack of response to consumer demand n Problems of a command economy < problems of gathering information < expensive to administer < inefficient allocation of resources F inappropriate incentives F no system of prices shortages and surpluses lack of response to consumer demand

Economic Systems n The free-market economy < based on free decision making by individuals and firms < demand and supply decisions < the price mechanism F shortages and surpluses shortage  price rises surplus  price falls F equilibrium price where demand equals supply F response to change in demand and supply n The free-market economy < based on free decision making by individuals and firms < demand and supply decisions < the price mechanism F shortages and surpluses shortage  price rises surplus  price falls F equilibrium price where demand equals supply F response to change in demand and supply

Economic Systems n Interdependence of markets < effect of a rise in demand F effect in market for that good n Interdependence of markets < effect of a rise in demand F effect in market for that good

Goods Market DgDg  shortage (D g > S g ) PgPg  SgSg  DgDg  until D g = S g The price mechanism: the effect of a rise in demand The price mechanism: the effect of a rise in demand

Economic Systems n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets

Goods Market DgDg  shortage (D g > S g ) PgPg  SgSg  DgDg  until D g = S g Factor Market SgSg  SfSf  DfDf  until D f = S f  DfDf shortage (D f > S f ) PfPf  The price mechanism: the effect of a rise in demand The price mechanism: the effect of a rise in demand

Economic Systems n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets

Economic Systems n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets

Economic Systems n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets n Competitive markets n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets n Competitive markets

Economic Systems n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets n Competitive markets < perfectly competitive markets n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets n Competitive markets < perfectly competitive markets

Economic Systems n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets n Competitive markets < perfectly competitive markets < everyone is a price taker n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets n Competitive markets < perfectly competitive markets < everyone is a price taker

Economic Systems n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets n Competitive markets < perfectly competitive markets < everyone is a price taker < why study perfect markets? n Interdependence of markets < effect of a rise in demand F effect in market for that good F effect in factor markets F effect in other goods markets F effect in other factor markets n Competitive markets < perfectly competitive markets < everyone is a price taker < why study perfect markets?

Demand n The relationship between demand and price < the income effect < the substitution effect n The demand curve < assumptions < the axes < illustrates how much would be demanded at each price n The relationship between demand and price < the income effect < the substitution effect n The demand curve < assumptions < the axes < illustrates how much would be demanded at each price

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) 20 Market demand (tonnes 000s) 700 A Point A Market demand for potatoes (monthly) Demand

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) Market demand (tonnes 000s) ABAB Point A B Demand Market demand for potatoes (monthly)

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) Market demand (tonnes 000s) ABCABC Point A B C Demand Market demand for potatoes (monthly)

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) Market demand (tonnes 000s) ABCDABCD Point A B C D Demand Market demand for potatoes (monthly)

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) Market demand (tonnes 000s) ABCDEABCDE Point A B C D E Demand Market demand for potatoes (monthly)

Demand n Other determinants of demand < tastes < number and price of substitute goods < number and price of complementary goods < income < distribution of income < expectations n Movements along and shifts in the demand curve n Other determinants of demand < tastes < number and price of substitute goods < number and price of complementary goods < income < distribution of income < expectations n Movements along and shifts in the demand curve

D1D1 Price P OQ0Q0 Q1Q1 Quantity An increase in demand D0D0

Supply n Relationship between supply and price < as price rises, firms supply more F it is worth incurring the extra unit costs F they switch from less profitable goods F in the long run, new firms will be encouraged to enter the market n The supply curve < assumptions < the axes < illustrates how much would be supplied at each price n Relationship between supply and price < as price rises, firms supply more F it is worth incurring the extra unit costs F they switch from less profitable goods F in the long run, new firms will be encouraged to enter the market n The supply curve < assumptions < the axes < illustrates how much would be supplied at each price

Price (pence per kg) Quantity (tonnes: 000s) Supply a P 20 Q 100 a Market supply of potatoes (monthly)

Price (pence per kg) Quantity (tonnes: 000s) Supply a b P Q abab Market supply of potatoes (monthly)

Price (pence per kg) Quantity (tonnes: 000s) Supply a b c P Q abcabc Market supply of potatoes (monthly)

Price (pence per kg) Quantity (tonnes: 000s) Supply a b c d P Q abcdabcd Market supply of potatoes (monthly)

Price (pence per kg) Quantity (tonnes: 000s) Supply a b c d e P Q abcdeabcde Market supply of potatoes (monthly)

Supply n Other determinants of supply < costs of production < profitability of alternative products < profitability of goods in joint supply < nature and other random shocks < aims of producers < expectations of producers n Movements along and shifts in the supply curve n Other determinants of supply < costs of production < profitability of alternative products < profitability of goods in joint supply < nature and other random shocks < aims of producers < expectations of producers n Movements along and shifts in the supply curve

P QO S0S0 Increase Shifts in the supply curve S1S1

P QO S2S2 S0S0 S1S1 IncreaseDecrease Shifts in the supply curve

The Determination of Price n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves

The determination of market equilibrium (potatoes: monthly) Quantity (tonnes: 000s) E D C A a c d e Supply Demand Price (pence per kg) A a B b

The Determination of Price n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium

The Determination of Price n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium F surplus  price falls n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium F surplus  price falls

Quantity (tonnes: 000s) E C B A a b c e Supply Demand Price (pence per kg) D d SURPLUS ( ) The determination of market equilibrium (potatoes: monthly)

The Determination of Price n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium F surplus  price falls < effect of price being below equilibrium n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium F surplus  price falls < effect of price being below equilibrium

The Determination of Price n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium F surplus  price falls < effect of price being below equilibrium F shortage  price rises n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium F surplus  price falls < effect of price being below equilibrium F shortage  price rises

Quantity (tonnes: 000s) E D C A a c d e Supply Demand Price (pence per kg) B b The determination of market equilibrium (potatoes: monthly)

Quantity (tonnes: 000s) E D C B A a b c d e Supply Demand Price (pence per kg) SHORTAGE ( ) The determination of market equilibrium (potatoes: monthly)

The Determination of Price n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium F surplus  price falls < effect of price being below equilibrium F shortage  price rises < equilibrium: where D = S n Equilibrium price and output < response to shortages and surpluses < significance of “equilibrium” n Demand and supply curves < effect of price being above equilibrium F surplus  price falls < effect of price being below equilibrium F shortage  price rises < equilibrium: where D = S

D d QeQe Quantity (tonnes: 000s) E B A a b e Supply Demand Price (pence per kg) The determination of market equilibrium (potatoes: monthly)

The Determination of Price n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls

Effect of a shift in the demand curve P Q O Pe1Pe1 Qe1Qe1 S D1D1 g

P Q O Pe1Pe1 Qe1Qe1 S D1D1 g

P Q O Pe1Pe1 Qe1Qe1 S D1D1 D2D2 g

P Q O Pe1Pe1 Qe1Qe1 S g h D1D1 D2D2 Pe2Pe2 Qe2Qe2 i

The Determination of Price n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls n Effects of shifts in the supply curve n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls n Effects of shifts in the supply curve

The Determination of Price n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls n Effects of shifts in the supply curve < movement along D curve and new S curve n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls n Effects of shifts in the supply curve < movement along D curve and new S curve

The Determination of Price n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls n Effects of shifts in the supply curve < movement along D curve and new S curve F rise in supply (rightward shift)  P falls n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls n Effects of shifts in the supply curve < movement along D curve and new S curve F rise in supply (rightward shift)  P falls

The Determination of Price n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls n Effects of shifts in the supply curve < movement along D curve and new S curve F rise in supply (rightward shift)  P falls F fall in supply (leftward shift)  P rises n Effects of shifts in the demand curve < movement along S curve and new D curve F rise in demand (rightward shift)  P rises F fall in demand (leftward shift)  P falls n Effects of shifts in the supply curve < movement along D curve and new S curve F rise in supply (rightward shift)  P falls F fall in supply (leftward shift)  P rises

Effect of a shift in the supply curve P Q O Pe1Pe1 Qe1Qe1 D S1S1 g

P Q O Pe1Pe1 Qe1Qe1 D S1S1 g

P Q O Pe1Pe1 Qe1Qe1 D S1S1 S2S2 g

P Q O Pe1Pe1 Pe3Pe3 Qe3Qe3 Qe1Qe1 D S1S1 S2S2 jg k

The Free-market Economy n Advantages of a free-market economy < transmits information between buyers and sellers < no need for costly bureaucracy < incentives to be efficient < competitive markets respond to consumer wishes n Advantages of a free-market economy < transmits information between buyers and sellers < no need for costly bureaucracy < incentives to be efficient < competitive markets respond to consumer wishes

The Free-market Economy n Problems of a free-market economy < competition may be limited < inequality < environment and social goals may be ignored n The mixed economy < types of intervention F use of taxes, subsidies and benefits F legislation and regulation F direct provision by the government n Problems of a free-market economy < competition may be limited < inequality < environment and social goals may be ignored n The mixed economy < types of intervention F use of taxes, subsidies and benefits F legislation and regulation F direct provision by the government