1. Moh. Sigit Taruna 2009-Pengantar Ekonomi I
Supply
And
Demand
Pertemuan - 3
Moh. Sigit Taruna 2009-Pengantar Ekonomi I 1

2. The Market Mechanism The Supply Curve
The supply curve shows how much of a good producers are willing to sell at a given price, holding constant other factors that might affect quantity supplied
This price-quantity relationship can be shown by the equation: 5

3. The Market Mechanism The Demand Curve
The demand curve shows how much of a good consumers are willing to buy as the price per unit changes holding non-price factors constant.
This price-quantity relationship can be shown by the equation: 8

4. The Market Mechanism S P0 D Q0 Price ($ per unit)
The curves intersect at
equilibrium, or market-
clearing, price. At P0 the
quantity supplied is equal
to the quantity demanded
at Q0 . P0 Q0
Quantity 12

5. The Market Mechanism The market price is above equilibrium A Surplus
There is excess supply
Producers lower prices
Quantity demanded increases and quantity supplied decreases
The market continues to adjust until the equilibrium price is reached. 19

6. The Market Mechanism Surplus S D Q1 P1 Q2 P2 Q3 Price ($ per unit)
Quantity
Price
($ per unit) S D Q1
Assume the price is P1 , then:
1) Qs : Q2 > Qd : Q1
2) Excess supply is Q1:Q2.
3) Producers lower price.
4) Quantity supplied decreases and quantity demanded increases.
5) Equilibrium at P2Q3 P1
Surplus Q2 P2 Q3 17

7. The Market Mechanism Shortage The market price is below equilibrium:
There is a shortage
Producers raise prices
Quantity demanded decreases and quantity supplied increases
The market continues to adjust until the new equilibrium price is reached. 24

8. The Market Mechanism S Shortage D Q3 P3 Q1 Q2 P2 Price ($ per unit)
Quantity
Price
($ per unit) S D
Assume the price is P2 , then:
1) Qd : Q2 > Qs : Q1
2) Shortage is Q1:Q2.
3) Producers raise price.
4) Quantity supplied increases and quantity demanded decreases.
5) Equilibrium at P3, Q3 Q3 P3 Q1 Q2 P2
Shortage 22

9. Supply and Demand Non-price Determining Variables of Supply
Costs of Production
Labor
Capital
Raw Materials 27

10. Supply and Demand The cost of raw materials falls Change in Supply
At P1, produce Q2
At P2, produce Q1
Supply curve shifts right to S’
More produced at any price on S’ than on S P S S’ Q2 P1 P2 Q1 Q0 Q 31

11. Changes In Market Equilibrium (Supply Curve)
Jika biaya turun, harga (P) dan jumlah (Q) tidak selalu konstan
Akan terjadi perubahan, jika supply curve yang baru mencapai ekuilibrium dengan demand curve
Supply curve akan menggeser, maka harga pasar akan jatuh dan jumlah produksi naik
Maka biaya yang rendah menghasilkan harga yang lebih rendah dan penjualan meningkat.

12. Changes In Market Equilibrium
Raw material prices fall
S shifts to S’
P1 of Q1, Q2
P3, Q3 P S D S’ Q2 Q1 P1 P3 Q3 Q 34

13. Supply and Demand Non-price Determining Variables of Demand Income
Consumer Tastes
Price of Related Goods
Substitutes
Complements 36

14. Supply and Demand Income Increases Change in Demand P D D’ Q2
At P1, produce Q2
At P2, produce Q1
Demand Curve shifts right
More purchased at any price on D’ than on D Q1 P2 Q0 P1 Q 41

15. Changes In Market Equilibrium
Income Increases
Demand shifts to D1
P1 of Q1, Q2
P3, Q3 P S D D’ Q3 P3 Q2 Q1 P1 Q 44

16. Changes In Market Equilibrium
Income Increases & raw material prices fall
The increase in D is greater than the increase in S
Equilibrium price and quantity increase to P2, Q2 P S S’ D D’ P2 Q2 P1 Q1 Q 49

17. Elasticity
Elasticity is a general concept that can be used to quantify the response in one variable when another variable changes.
Seberapa besar perubahan jumlah yang diminta sebagai akibat dari perubahan harga
Pertemuan - 6
Moh. Sigit Taruna 2009

18. Permintaan Elastis dan Inelastis
Elastis : bila jumlah yang diminta sangat peka terhadap perubahan harga
Inelastis : bila jumlah yang diminta kurang peka terhadap perubahan harga
Price elastic demand : perubahan harga sebesar 1% menyebabkan perubahan jumlah yang diminta lebih dari 1%
Price inelastic demand :perubahan harga sebesar 1% menyebabkan perubahan jumlah yang diminta kurang dari 1%

19. Price Elasticity of Demand
A popular measure of elasticity is price elasticity of demand measures how responsive consumers are to changes in the price of a product.
The value of demand elasticity is always negative, but it is stated in absolute terms.

20. Elasticities of Supply and Demand
Other Demand Elasticities
Income elasticity of demand measures the percentage change in quantity demanded resulting from a one percent change in income. 79

21. Price Elasticity of DemandPX
Elastis
Elastis Uniter
Inelastis QX
MRX

22. Perfectly Elastic and Perfectly Inelastic Demand Curves
When demand does not respond at all to a change in price, demand is perfectly inelastic.
Demand is perfectly elastic when quantity demanded drops to zero at the slightest increase in price.

23. Elasticities of Supply and Demand
Price elasticity of supply measures the percentage change in quantity supplied resulting from a 1 percent change in price.
The elasticity is usually positive because price and quantity supplied are directly related. 84

24. Elasticities of Supply and Demand
We can refer to elasticity of supply with respect to interest rates, wage rates, and the cost of raw materials. 84

25. Elasticities of Supply and Demand
The Market for Wheat
1981 Supply Curve for Wheat
QS = 1, P
1981 Demand Curve for Wheat
QD = 3, P

26. Elasticities of Supply and Demand
The Market for Wheat
Equilibrium: Q S = Q D
Chapter 2: The Basics of Supply and Demand
Slide 26

27. Elasticities of Supply and Demand
The Market for Wheat
Chapter 2: The Basics of Supply and Demand
Slide 27

28. Elasticities of Supply and Demand
The Market for Wheat
Assume the price of wheat is $4.00/bushel

29. Changes in the Market: 1981-1998
The Market for Wheat
Supply (Qs) Demand (QD) Equilibrium Price (Qs = QD)
1981 1, P 3, P 1, P = 3, P P = P1981 = $3.46/bushel
1998 1, P 3, P 1, P = 3, P P1998 = $2.65/bushel 66

31. Short-Run Versus Long-Run Elasticities
Demand
Price elasticity of demand varies with the amount of time consumers have to respond to a price. 85

32. Short-Run Versus Long-Run Elasticities
Demand
Most goods and services:
Short-run elasticity is less than long-run elasticity. (e.g. gasoline, Drs.)
Other Goods (durables):
Short-run elasticity is greater than long-run elasticity (e.g. automobiles) 86

33. Gasoline: Short-Run and Long-Run Demand Curves
DSR
Quantity
Price
DLR
People tend to
drive smaller and
more fuel efficient
cars in the long-run
Gasoline 87

34. Automobiles: Short-Run and Long-Run Demand Curves
DLR
People may put
off immediate
consumption, but
eventually older cars
must be replaced.
Quantity
Price
DSR
Automobiles 88

35. Short-Run Versus Long-Run Elasticities
Supply
Most goods and services:
Long-run price elasticity of supply is greater than short-run price elasticity of supply.
Other Goods (durables, recyclables):
Long-run price elasticity of supply is less than short-run price elasticity of supply 96

36. Short-Run Versus Long-Run Elasticities
Primary Copper: Short-Run and
Long-Run Supply Curves
SSR
Quantity
Price
SLR
Due to limited
capacity, firms
are limited by
output constraints
in the short-run.
In the long-run, they
can expand. 98

37. Short-Run Versus Long-Run Elasticities
Secondary Copper: Short-Run and
Long-Run Supply Curves
SLR
Price increases
provide an incentive
to convert scrap
copper into new supply.
In the long-run, this
stock of scrap copper
begins to fall.
SSR
Quantity
Price 98

38. Short-Run Versus Long-Run Elasticities
Coffee S P0
A freeze or drought
decreases the supply
of coffee S’ Q1
Price D P1
Short-Run
1) Supply is completely inelastic
2) Demand is relatively inelastic
3) Very large change in price Q0
Quantity
101

39. Short-Run Versus Long-Run Elasticities
Coffee S’ S
Quantity
Price D P2 Q2
Intermediate-Run
1) Supply and demand are
more elastic
2) Price falls back to P2.
3) Quantity falls to Q2 P0 Q0
104

40. Short-Run Versus Long-Run Elasticities
Coffee
Quantity
Price S P0 Q0
Long-Run
1) Supply is extremely elastic.
2) Price falls back to P0.
3) Quantity increase to Q0. D
105

41. Understanding and Predicting the Effects of Changing Market Conditions
First, we must learn how to “fit” linear demand and supply curves to market data.
Then we can determine numerically how a change in a variable will cause supply or demand to shift and thereby affect the market price and quantity.
106

42. Understanding and Predicting the Effects of Changing Market Conditions
Available Data
Equilibrium Price, P*
Equilibrium Quantity, Q*
Price elasticity of supply, ES, and demand, ED.
107

43. Understanding and Predicting the Effects of Changing Market Conditions
Price
Supply: Q = c + dP
-c/d
Demand: Q = a - bP
a/b P* Q*
ED = -bP*/Q*
ES = dP*/Q*
Quantity
108

44. Effects of Government Intervention --Price Controls
If the government decides that the equilibrium price is too high, they may establish a maximum allowable ceiling price.
140

45. Effects of Price ControlsQ0 S D
Pmax
Excess demand
If price is regulated to
be no higher than Pmax,
quantity supplied falls
to Q1 and quantity
demanded increases to
Q2. A shortage results
Quantity
141

46. Price Controls and Natural Gas Shortages
In 1954, the federal government began regulating the wellhead price of natural gas.
In 1962, the ceiling prices that were imposed became binding and shortages resulted.
Price controls created an excess demand of 7 trillion cubic feet.
Price regulation was a major component of U.S. energy policy in the 1960s and 1970s, and it continued to influence the natural gas markets in the 1980s.
143