Presentation is loading. Please wait.

Presentation is loading. Please wait.

Introduction to Macroeconomics Chapter 3. Microeconomic Laws of Demand and Supply.

Similar presentations


Presentation on theme: "Introduction to Macroeconomics Chapter 3. Microeconomic Laws of Demand and Supply."— Presentation transcript:

1 Introduction to Macroeconomics Chapter 3. Microeconomic Laws of Demand and Supply

2 Introduction to Macroeconomics Chapter 3. Laws of Demand & Supply 1. Markets and the Role of Prices 2. Microeconomic Demand and Supply –Demand –Supply 3. Demand - Supply Equilibrium –Equilibrium –Disequilibrium 4. Shifts in Demand and Supply Curves 5. Case Studies

3 Introduction to Macroeconomics 1. Markets and the Role of Prices Competitive Free Market - many suppliers and many consumers (competitive) engaged in trade without government interference (free). Prices - provide a means of communication between suppliers and consumers regarding scarcity and wants.

4 Introduction to Macroeconomics 2. Micro Demand and Supply Demand –Law of Demand –Demand curve –Ceteris paribus assumption Supply –Law of Supply –Supply curve –Ceteris paribus assumption

5 Introduction to Macroeconomics 2. Micro Demand and Supply Law of Demand As the price of a product declines relative to the price of all other goods, the quantity demanded will increase, ceteris paribus. The demand curve, a graphic representation of the Law of Demand, slopes downward to the right

6 Introduction to Macroeconomics 2. Micro Demand and Supply Demand Curve As price declines the quantity demanded increases Demand

7 Introduction to Macroeconomics 2. Micro Demand and Supply Demand Curve Ceteris Paribus Assumption All other non-price factors that can affect demand are unchanged: Prices of all other goods Income Tastes

8 Introduction to Macroeconomics 2. Micro Demand and Supply Law of Supply As the price of a product declines relative to the price of all other goods, the quantity supplied will decline, ceteris paribus. The supply curve, a graphic representation of the Law of Supply, slopes upward to the right

9 Introduction to Macroeconomics 2. Micro Demand and Supply Supply Curve As price increases the quantity supplied increases Supply

10 Introduction to Macroeconomics 2. Micro Demand and Supply Supply Curve Ceteris Paribus Assumption All other non-price factors that can affect supply are unchanged: Prices of all inputs –labor, raw materials, cost of capital Prices of all other goods Technology Environment (e.g., weather)

11 Introduction to Macroeconomics 3. Demand - Supply Equilibrium Equilibrium Disequilibrium –Price floor –Price ceiling

12 Introduction to Macroeconomics 3. Demand - Supply Equilibrium Equilibrium Equilibrium Supply Demand Price at which quantity supplied equals the quantity demanded

13 Introduction to Macroeconomics 3. Demand - Supply Equilibrium Disequilibrium Price above the equilibrium level –quantity demanded < quantity supplied –surplus (inventory build) –price floor: price prevented from dropping to equilibrium level Price below the equilibrium level –quantity demanded > quantity supplied –shortage (inventory declines) –price ceiling: price prevented from rising to equilibrium level

14 Introduction to Macroeconomics 3. Demand - Supply Equilibrium Price Floor SupplyDemand Price Floor Quantity DemandedQuantity Supplied< = Surplus

15 Introduction to Macroeconomics 3. Demand - Supply Equilibrium Price Ceiling SupplyDemand Price Ceiling Quantity SuppliedQuantity Demanded< = Shortage

16 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Demand Curve –Demand vs quantity demanded –Demand curve shifters Supply Curve –Supply vs quantity supplied –Supply curve shifters Change in equilibrium

17 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Demand vs Quantity Demanded Quantity Demanded refers to a point on the demand curve. AChange in Quantity Demanded refers to a movement along a stable demand curve Demand refers to the entire curve. A Change in Demand refers to a shift in the demand curve.

18 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Change in Quantity Demanded As price declines the quantity demanded increases Demand A change in price results in a movement along a demand curve

19 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Change in Demand Increase in Demand: Demand Curve Shifts Right A change in anything except price that affects the quantity demanded results in a shift of the demand curvve

20 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Demand Curve Shifters A change in any variable listed under the Ceteris Paribus assumptions

21 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Income: Normal and Inferior Goods Demand curve will shift with change in income Normal Good - as income increases, demand for the good also increases (demand curve shifts right) Inferior Good - as income increases, demand for the good decreases (demand curve shifts left)

22 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Price of Related Goods Demand curve will shift with change in price of related goods Complements in Demand - demand decreases as price of complement increases –big cars and gasoline Substitutes in Demand - demand increases as price of substitute increases –butter and margerine

23 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Supply vs Quantity Supplied Quantity Supplied refers to a point on the supply curve. A Change in Quantity Supplied refers to a movement along a stable supply curve. Supply refers to the entire curve. AChange in Supply refers to a shift in the supply curve.

24 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Change in Quantity Supplied A change in price results in a movement along a supply curve As price declines the quantity supplied decreases Supply

25 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Change in Supply Increase in Supply: Supply Curve Shifts Right A change in anything except price that affects the quantity supplied results in a shift of the supply curvve

26 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Supply Curve Shifters A change in any variable listed under the Ceteris Paribus assumptions

27 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Complements and Substitutes in Supply Supply curve will shift with change in price of related goods in the production process Complements in Supply - supply increases as price of the complement increases –beef and leather Substitutes in Supply - supply decreases as price of the substitute increases –wheat and rye

28 Introduction to Macroeconomics 4. Shifts in Demand and Supply Curves Supply Curve Shift and Equilibrium Supply Curve Shifts Right Demand Increase in Quantity Decrease in Price

29 Introduction to Macroeconomics 5. Case Studies Recessions and microeconomic markets Rent control Import quotas


Download ppt "Introduction to Macroeconomics Chapter 3. Microeconomic Laws of Demand and Supply."

Similar presentations


Ads by Google