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

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Presentation on theme: "NOW PLAYING: MARKET ANALYSIS Presented by: Mr. Kuzmich Economics."— Presentation transcript:

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

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

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

4 Quantity Exchanged Its simple. Its simple. An increase in supply or demand causes an increase in quantity exchanged. An increase in supply or demand causes an increase in quantity exchanged. A decrease in supply or demand causes a decrease in quantity exchanged. A decrease in supply or demand causes a decrease in quantity exchanged.

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

6 Changes in Supply or Demand Impact on Equilibrium Price Impact on Quantity Exchanged Increase in Supply DownUp Decrease in Supply UpDown Increase in Demand UpUp Decrease in Demand DownDown

7 Changes in relative scarcity A product becomes more scarce if: A product becomes more scarce if: demand increases demand increases supply decreases supply decreases price will rise price will rise A product becomes less scarce if: A product becomes less scarce if: demand ____________ demand ____________ supply _____________ supply _____________ price will _________ price will _________

8 Changes in relative scarcity A product becomes more scarce if: demand increases supply decreases price will rise A product becomes less scarce if: demand decreases supply increases price will fall

9 Three Steps of Market Analysis 1.Identify the Market Product, place, time Product, place, time 2.Identify the change Supply or demand, increase or decrease? Supply or demand, increase or decrease? 3.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, Iraq oil wells come back on line. The world market for oil, Iraq oil wells come back on line. Demand or supply? Increase or decrease? Demand or supply? Increase or decrease? Relative scarcity, price, quantity? 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. 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? Demand or supply? Increase or decrease? Relative scarcity, price, quantity? Relative scarcity, price, quantity?

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

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

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

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

17

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. 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) A government sets a legal price below the equilibrium (price ceiling) Buyers will want to buy _________ Buyers will want to buy _________ Suppliers will want to supply ________ Suppliers will want to supply ________ There is a (surplus or shortage). There is a (surplus or shortage). Rent controls, doctors, prescription drugs Rent controls, doctors, prescription drugs

20 A Price Floor is a minimum legal price ABOVE the 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. 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 A government sets a legal price above the equilibrium Buyers will want to buy _________ Buyers will want to buy _________ Suppliers will want to supply ________ Suppliers will want to supply ________ There is a (surplus or shortage). There is a (surplus or shortage). Minimum wage, agricultural price supports Minimum wage, agricultural price supports

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

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

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

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

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

27 Lets save the energy consumers of California

28 Market Analysis Change in Supply (WAGTIP) Change in Demand (TIPSE) Equilibrium Price Quantity Supplied Quantity Demanded Quantity Exchanged Increase_________Down_________UpUp Decrease_________Up_________DownDown _________IncreaseUpUp_________Up _________DecreaseDownDown_________Down

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


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