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# 1.The demand curve 2.The supply curve 3.Market equilibrium and disequilibrium 4.Comparative statics 5.Price floors 6.Price ceilings.

## Presentation on theme: "1.The demand curve 2.The supply curve 3.Market equilibrium and disequilibrium 4.Comparative statics 5.Price floors 6.Price ceilings."— Presentation transcript:

1.The demand curve 2.The supply curve 3.Market equilibrium and disequilibrium 4.Comparative statics 5.Price floors 6.Price ceilings

Demand is the relation between the price of a good and the quantity that consumers are willing and able to buy per period, other things constant. Law of demand: The quantity of a good that consumers are willing and able to buy per period relates inversely, or negatively, to the price, other things constant.

When the price of a good falls, that good becomes cheaper relative to (related) goods, so consumers tend to substitute that good for other goods. Im taking the subway more because cab fares have gone up

A fall in the price of a good increases consumers real income. The spike in gas prices has generated a negative income effect.

6 Price per pizza Quantity Demanded Per week (millions) abcdeabcde \$15 12 9 6 3 8 14 20 26 32 D a b c d e The demand schedule and demand curve for pizza 2620148 Millions of pizzas per week 32 0 9 6 3 12 Price per pizza \$15 The market demand D shows the quantity of pizza demanded, at various prices, by all consumers. Price and quantity demanded are inversely related. (a) Demand schedule (b) Demand curve

Quantity-demanded is the amount of a good buyers are willing and able to but at a specific price, other things constant. Millions of pizzas Price per pizza \$12 14 Demand 0 Quantity-demanded at a price of \$12 is 14 million pizzas per week

1.The price of good X 2.The price of substitutes 3.The price of complements 4.Income 5.Other factors

9 DD b f An increase in the market demand for pizza 2620148 Millions of pizzas per week 32 0 9 6 3 12 Price per pizza \$15 An increase in the demand for pizza is shown by a rightward shift of the demand curve, so the quantity demanded increases at each price.

10 Price per pizza Quantity Supplied Per week (millions) \$15 12 9 6 3 28 24 20 16 12 S The supply schedule and supply curve for pizza 24201612 Millions of pizzas per week 28 0 9 6 3 12 Price per pizza \$15 The market supply S shows the quantity of pizza supplied, at various prices, by all pizza makers. Price and quantity supplied are directly related. (a) Supply schedule (b) Supply curve

11 S S An increase in the supply of pizza 24201612 Millions of pizzas per week 28 0 9 6 3 12 Price per pizza \$15 An increase in the supply of pizza is reflected by a rightward shift of the supply curve, from S to S. Quantity supplied increases at each price level. g h

12 Equilibrium in the pizza market Millions of pizzas per week Price per pizza Quantity Demanded Quantity Supplied Surplus or Shortage Effect on Price \$15 12 9 6 3 8 14 20 26 32 28 24 20 16 12 Surplus of 20 Surplus of 10 Equilibrium Shortage of 10 Shortage of 20 Falls Remains the same Rises (a) Market schedules

Equilibrium in the pizza market (b) Market curves S 24201614 Millions of pizzas per week 26 0 9 6 3 12 Price per pizza \$15 D c Shortage Surplus Market equilibrium occurs at: Price where Q D =Q S ; Point c Above the equilibrium price: Q S >Q D ; Surplus; Downward pressure on P Below the equilibrium price: Q D >Q S ; Shortage; Upward pressure on P

14 Effects of an increase in demand S 2420 Millions of pizzas per week 30 0 9 \$12 Price per pizza D c D g Increase in demand: Rightward shift to D At P=\$9: Q D >Q S ; shortage Upward pressure on P Q D decreases Q S increases New equilibrium g Higher P Higher Q

15 Effects of an increase in supply S 2620 Millions of pizzas per week 30 0 \$9 6 Price per pizza D c S d Increase in supply: Rightward shift to S At P=\$9: Q S >Q D ; surplus Downward pressure on P Q D increases Q S decreases New equilibrium d Higher Q Lower P

16 Indeterminate effect of an increase in both D and S S p p Price D S a D b QQ Units per period 0 (a) Shift of D dominates S p p Price D S a D c QQ Units per period 0 (b) Shift of S dominates

17 Effects of both demand and supply Demand increases Demand decreases Supply Increases Equilibrium price change is indeterminate. Equilibrium quantity increases. Equilibrium price falls. Equilibrium quantity change is indeterminate. Supply decreases Equilibrium price rises. Equilibrium quantity change is indeterminate. Equilibrium price change is indeterminate. Equilibrium quantity decreases. Change in demand Change in supply

18 NBA pay leaps 100 200 300 400 450 Players per season 0 0.17 1.0 2.0 3.0 4.0 \$4.9 Average pay per season (millions) S 2007 D 2007 D 1980 S 1980 S – relatively fixed Big jump in D Average pay increased from \$170,000 in 1980 to 4,900,000 in 2007. Number of teams in NBA increased Number of players increased from 300 to 450.

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