101 lecture 4
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This document provides an overview of microeconomics concepts related to supply and demand. It defines key terms like market forces, competitive markets, quantity demanded/supplied, laws of demand and supply, demand/supply curves and schedules, equilibrium, surpluses and shortages. Factors that can cause shifts in supply and demand are also outlined, such as income, prices of related goods, and input prices. The relationship between supply/demand and equilibrium price/quantity is explained through diagrams and examples.
101 lecture 4
- 1. Microeconomics Chapter 4 The Market Forces of Supply and Demand
- 2. Review Exam 1 Average 76 Range 32 - 92
- 3. Number Total Utility Marginal Utility Change in Total Utility Average Utility Total Utility ÷ Number 1 10 10 10.00 2 15 5 7.50 3 19 4 6.33 4 23 4 5.75 5 25 2 5.00
- 4. market competitive market quantity demanded law of demand demand schedule demand curve normal good inferior good substitutes complements Key Terms quantity supplied law of supply supply schedule supply curve equilibrium equilibrium price equilibrium quantity surplus shortage law of supply and demand
- 6. Supply and Demand sellers supply buyers demand
- 7. Competitive Market many buyers and sellers no one has power to change price
- 8. Ceteris Paribus “all else equal”
- 9. Quantity Demanded QD amount people are willing and able to buy
- 10. Law of Demand when price goes up quantity demand goes down when price goes down quantity demand goes up
- 11. Law of Demand inverse relationship price up - QD down price down - QD up
- 12. Price Quantity 90 1 80 2 70 3 60 4 50 5 40 6 30 7 20 8 10 9 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Demand Schedule Demand Curve If I have a schedule I can make a curve If I have a curve I can make a schedule
- 13. Individual Demand Market Demand add up all of the individual demand curves
- 14. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve Price changes demand curve does not change quantity demanded changes
- 15. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
- 16. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve Price does not change demand curve shifts quantity demanded changes
- 17. Shift in Demand Income Prices of Related Goods Tastes Population & Demographics Expected Future Prices
- 18. Why does the demand curve slope downwards? Substitution Effect Income Effect
- 19. Substitution Effect the good is more or less expensive relative to other goods that are substitutes.
- 20. Income Effect the effect of a price change on consumer’s purchasing power.
- 21. Complements goods or services that are used together
- 22. Complements
- 24. Substitutes goods or services that can be used for the same purpose
- 26. Normal Good Demand increases as income rises and decreases as income falls
- 27. Inferior Good Demand decreases as income rises and increases as income falls
- 29. Quantity Supplied QS amount people are willing and able to sell
- 30. Law of Supply when price goes up quantity supplied goes up when price goes down quantity supplied goes down
- 31. Law of Supply direct relationship price up - QS up price down - QS down
- 32. Price Quantity 90 9 80 8 70 7 60 6 50 5 40 4 30 3 20 2 10 1 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Supply Schedule Supply Curve If I have a schedule I can make a curve If I have a curve I can make a schedule
- 33. Individual Supply Market Supply add up all of the individual supply curves
- 34. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Supply Curve Price changes supply curve does not change quantity supplied changes
- 35. Shift in Supply Input prices Technology Number of Sellers Expected Future Prices
- 36. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Supply Curve
- 37. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Equilibrium where market price is at a level where Quantity Demanded = Quantity Supplied Supply Demand
- 38. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Surplus where market price is above equilibrium price Quantity Demanded < Quantity Supplied Supply Demand QD QS QS - QD = 7 - 3 = 4 Price is too high too many pizzas lower price
- 39. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shortage where market price is below equilibrium price Quantity Demanded > Quantity Supplied Supply Demand QD QS QS - QD = 2 - 8 = -6 Price is too low not enough pizzas raise price
- 40. Three Steps 1. Does the event shift supply or demand or both? 2. Which direction is the shift? 3. Diagram new equilibrium