Lecture Slides (Ch. 3) - Tagged
.pdf
School
University of California, Davis**We aren't endorsed by this school
Course
ECON 30121
Subject
Economics
Date
Dec 19, 2024
Pages
38
Uploaded by ConstableScorpionPerson967
PRINCIPLES OF MACROECONOMICS 2eChapter 3 Demand and SupplyPowerPoint Image Slideshow
CH.3 OUTLINE3.1: Demand, Supply, and Equilibrium in Marketsfor Goods and Services3.2: Shifts in Demand and Supply for Goods andServices3.3: Changes in Equilibrium Price and Quantity: The Four-Step Process3.4: Price Ceilings and Price Floors3.5: Demand, Supply, and Efficiency
Why Does It Cost More?Organic vegetables and fruits that are grown and sold within a specific geographical region should, in theory, cost less than conventional produce because the transportation costs are less. That is not, however, usually the case. This is caused by demand and supply. (Credit: modification of work by Natalie Maynor/Flickr Creative Commons)
3.1 Demand, Supply, and Equilibrium in Markets for Goods and Servicesmount of some good or service consumers are willingand ableto purchase at eachyer pays for a unit of the specific good or service.ded - the total number of units of a good or service consumers are willing to purch- keeping all other variables that affect demand constant,price goes , then quantity demanded goes price goes , then quantity demanded goes
Demand Schedule & Curves for a certain good or service and the quantity demanded at each price.ship between price and quantity demanded of a certain good or service, with quan
Graphing the Demand●The points of a demand scheduleare graphed, and the line connecting them is the demand curve(D). ●The downwardslope of the demand curve again illustrates the law of demand- the inverse relationship between prices and quantity demanded.
Supply of Goods and Servicesamount of some good or service a producer is willing to supply at each price.pplied- the total number of units of a good or service producers are willing to sell aly- assuming all other variables that affect supply are held constant,•if price goes , then quantity supplied goes •if price goes , then quantity supplied goes
Supply Schedule & Curvehat shows the quantity supplied at a range of different prices.ustration of the relationship between price, shown on the vertical axis, and quantity
Graphing the Supply●The supply curve(S) is created by graphing the points from a supply scheduleand then connecting them. ●The upwardslope of the supply curve illustrates the law of supply- that a higher price leads to a higher quantity supplied, and vice versa.
Equilibrium - Where Demand and Supply Intersectand quantity where there is no economic pressure from surpluses or shortages thaquantity demanded = quantity suppliedantity demanded is equal to quantity suppliedwhich quantity demanded and quantity supplied are equal for a certain price level.ting price, quantity supplied exceeds the quantity demanded.xisting price, the quantity demanded exceeds the quantity supplied.
Equilibrium - Where Demand and Supply Intersect●The demand curve (D) and the supply curve (S) intersect at the equilibrium point E.●The equilibrium priceis the only price where,quantity demanded = quantity supplied ●At a price above equilibrium, quantity supplied > quantity demanded, so there is excess supply. ●At a price below equilibrium, quantity demanded > quantity supplied, so there is excess demand.
3.2 Shifts in Demand and Supply for Goods andServicesaribus- Latin phrase meaning “other things being equal”demand or supply curve is based on the ceteris paribus assumption that all else is
Demand Curve●The demand curve can be used to identify how much consumers would buy at any given price.
Shifting the Demand CurveIf income increases: ●Consumers will purchase larger quantities, pushing demand to the right (figure A). ●Thus, causing the demand curve to shift right (figure B).Figure AFigure B
Shifting the Demand Curve●Increased demandmeans that at every given price, the quantity demanded is higher, so that the demand curve shifts to the right from D0to D1. ●Decreased demandmeans that at every given price, the quantity demanded is lower, so that the demand curve shifts to the left from D0to D2.
What Factors Affect Demand?hen a change in some economic factor (other than price) causes a different quantitncesn of the populationlement changesbout future
How Factors Affect Demand(a)A list of factors that can cause an increase in demand from D0to D1. (b)The same factors, if their direction is reversed, can cause a decrease in demand from D0to D1.
Types of Goods & Serviceshose demand rises when income rises, and vice versa.hose demand falls when income rises, rises, and vice versa.ce that we can use in place of another good or service.ervices that are often used together so that consumption of one good tends to enha
Supply Curve●The supply curve can be used to show the minimum price a firm will accept to produce a given quantity of output.
Supply Price●The cost of production and the desired profit equal the price a firm will set for a product.
Changing the Price●Because the cost of production and the desired profit equal the price a firm will set for a product, ○If the cost of production , the pricefor the product will also need to .
Shifting the Supply Curve●When the cost of production increases, the supply curve shifts upto a new price level.
Shifting the Supply Curve●Decreased supplymeans that at every given price, the quantity supplied is lower, so that the supply curve shifts to the left, from S0to S1. ●Increased supplymeans that at every given price, the quantity supplied is higher, so that the supply curve shifts to the right, from S0to S2.
What Factors Affect Supply?a change in some economic factor (other than price) causes a different quantity to oduction- the combination of labor, materials, and machinery that is used to produy:s
How Factors Affect Supply(a)A list of factors that can cause an increase in supply from S0to S1. (b)The same factors, if their direction is reversed, can cause a decrease in supply from S0to S1.
3.3 Changes in Equilibrium Price and Quantity: The Four-Step Processetermining how an economic event affects equilibrium priceand quantity:mand and supply model before the economic change took place.ether the economic change affects demand or supply.ether the effect causes a curve shift to the right or to the left, and sketch the new ce new equilibrium and then compare to the original.
Example: Shift in Supply●Discussion Question: Using the 4-step approach, how did excellent weather conditions during the summer affect the quantity and price of salmon?
Example: Shift in Demand●Discussion Question: From 2004 to 2012, the share of Americans who reported obtaining their news from digital sources increased from 24% to 39%. Using the 4-step approach, how has this affected the consumption of traditional sources, such as print news media, and radio and television news?
A Combined Example(a)Higher labor compensation causes a leftward shift in the supply curve, a decrease in the equilibrium quantity, and an increase in the equilibrium price. (b)A change in tastes away from Postal Services causes a leftward shift in the demand curve, a decrease in the equilibrium quantity, and a decrease in the equilibrium price.●Discussion Question: Using the 4-step approach, what does an increase in labor compensation, as well as an increase in digital communication suggest about the continued viability of the Postal Service?
A Combined Example●Superimposing the previous two diagrams one on top of the other, we see that supply and demand shifts cause changes in equilibrium price and quantity.
Movements vs. Shifts●A shift in one curve never causes a shift in the other curve. Rather, a shift in one curve causes a movement along the second curve.●Movements are different than shifts.
3.4 Price Ceilings and Price Floors●Price controls- laws that governments enact to regulate prices.•Price ceiling- •keeps a price from rising above a certain level•a legal maximum price that one pays for some good or service•Price floor- •keeps a price from falling below a given level.•is the lowest price that one can legally pay for some good or service.
A Price Ceiling Example - Rent Control●The original intersection of demand and supply occurs at E0. ●If demand shifts from D0to D1, the new equilibrium would be at E1- unless a price ceiling prevents the price from rising. ●If the price is not permitted to rise, the quantity supplied remains at 15,000. However, after the change in demand, the quantity demanded rises to 19,000, resulting in a shortage.
A Price Floor Example - European Wheat Prices●The intersection of demand (D) and supply (S) would be at the equilibrium point E0. ●However, a price floor set at Pf holds the price above E0and prevents it from falling. ●The result of the price floor is that the quantity supplied Qsexceeds the quantity demanded Qd. There is excess supply, also called a surplus.
3.5 Demand, Supply, and Efficiencysurplus- ount that individuals would have been willing to pay minus the amount that they acta above the market price and below the demand curve.urplus- e the producer actually received minus the price the producer would have been wia between the market price and the segment of the supply curve below the equilibrplus/economic surplus/total surplus = consumer surplus + producer surplust loss- the loss in social surplus that occurs when a market produces an inefficien
Consumer and Producer Surplus●The somewhat triangular area labeled by F shows the area of consumer surplus, which shows that the equilibrium price in the market was less than what many of the consumers were willing to pay. ●The somewhat triangular area labeled by G shows the area of producer surplus, which shows that the equilibrium price received in the market was greater than what many of the producers were willing to accept for their products.
Efficiency and Price Floors and Ceilings(a)The original equilibrium price is $600 with a quantity of 20,000. Consumer surplus is T + U, and producer surplus is V + W + X. A price ceiling is imposed at $400, so firms in the market now produce only a quantity of 15,000. As a result, the new consumer surplus is T + V, while the new producer surplus is X. (b)The original equilibrium is $8 at a quantity of 1,800. Consumer surplus is G + H + J, and producer surplus is I + K. A price floor is imposed at $12, which means that quantity demanded falls to 1,400. As a result, the new consumer surplus is G, and the new producer surplus is H + I.
This OpenStax ancillary resource is © Rice University under a CC-BY 4.0 International license; it may be reproduced or modified but must be attributed to OpenStax, Rice University and any changes must be noted.