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Published byMolly Reed Modified over 2 years ago

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THE TIME DIMENSION Short-run and long-run price adjustmentShort-run and long-run price adjustment –short- and long-run demand and supply curves –short- and long-run adjustment to a change in demand SpeculationSpeculation –stabilising speculation –destabilising speculation Uncertainty and riskUncertainty and risk –defining risk and uncertainty –reducing risks by holding stocks –futures markets

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Response of supply to an increase in demand D1D1 P1P1 Q1Q1 P Q O a

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D1D1 D2D2 P1P1 Q1Q1 P Q O a

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D1D1 D2D2 S short-run P1P1 P2P2 Q1Q1 Q2Q2 P Q O a b Response of supply to an increase in demand

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D1D1 D2D2 S long-run P1P1 P3P3 P2P2 Q1Q1 Q2Q2 Q3Q3 P Q O a b c S short-run Response of supply to an increase in demand

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S1S1 P1P1 Q1Q1 P Q O a Response of demand to an increase in supply

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S1S1 P1P1 Q1Q1 P Q O a S2S2

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S1S1 S2S2 D short-run P1P1 P2P2 Q1Q1 Q2Q2 P Q O a b Response of demand to an increase in supply

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S1S1 S2S2 D short-run D long-run P1P1 P3P3 P2P2 Q1Q1 Q2Q2 Q3Q3 P Q O a b c

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Stabilising speculation: initial price fall P1P1 P Q O S1S1 D1D1 a

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P1P1 P2P2 P Q O D2D2 a b S1S1 D1D1

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P1P1 P3P3 P2P2 P Q O S2S2 D2D2 a b c D3D3 S1S1 D1D1

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Stabilising speculation: initial price rise P1P1 P Q O S1S1 D1D1 a

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P1P1 P2P2 P Q O S1S1 D1D1 D2D2 a b

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P1P1 P3P3 P2P2 P Q O S1S1 S2S2 D1D1 D2D2 a b c D3D3

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Destabilising speculation: initial price fall P1P1 P Q O S1S1 D1D1 a

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P1P1 P2P2 P Q O S1S1 D1D1 D2D2 a b

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P1P1 P3P3 P2P2 P Q O S1S1 S2S2 D1D1 D2D2 a b c D3D3

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Destabilising speculation: initial price rise P1P1 P Q O S1S1 D1D1 a

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P1P1 P2P2 P Q O S1S1 D1D1 D2D2 a b

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P1P1 P3P3 P2P2 P Q O S1S1 S2S2 D1D1 D2D2 a b c D3D3

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