chapter_2

chapter_2 - Supply and Demand The Supply Curve The supply...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 2: The Basics of Supply and Demand Slide 1 Supply and Demand 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: ) ( P Q Q s s =
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 2: The Basics of Supply and Demand Slide 2 Supply and Demand S The supply curve slopes upward demonstrating that at higher prices, firms will increase output The Supply Curve Graphically Quantity Price ($ per unit) P 1 Q 1 P 2 Q 2
Background image of page 2
Chapter 2: The Basics of Supply and Demand Slide 3 Supply and Demand The cost of raw materials falls At P 1 , produce Q 2 At P 2 , produce Q 1 Supply curve shifts right to S More produced at any price on S than on S P S Change in Supply Q P 1 P 2 Q 1 Q 0 S’ Q 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 2: The Basics of Supply and Demand Slide 4 Supply and Demand 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: (P) Q Q D D =
Background image of page 4
Chapter 2: The Basics of Supply and Demand Slide 5 Supply and Demand D The demand curve slopes downward demonstrating that consumers are willing to buy more at a lower price Quantity Price ($ per unit)
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 2: The Basics of Supply and Demand Slide 6 D P Q Q 1 P 2 Q 0 P 1 D’ Q 2 Change in Demand Supply and Demand Income Increases At P 1 , purchase Q 2 At P 2 , purchase Q 1 Demand Curve shifts right More purchased at any price on D’ than on D
Background image of page 6
Chapter 2: The Basics of Supply and Demand Slide 7 The Market Mechanism Quantity D S The curves intersect at equilibrium, or market- clearing, price. At P 0 the quantity supplied is equal to the quantity demanded at Q 0 . P 0 Q 0 Price ($ per unit)
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 2: The Basics of Supply and Demand Slide 8 The Market Mechanism D S Q 1 Assume the price is P 1 , then: 1) Q s : Q 2 > Q d : Q 1 2) Excess supply is Q 2 – Q 1 . 3) Producers lower price. 4) Quantity supplied decreases and quantity demanded increases. 5) Equilibrium at P 2 Q 3 P 1 Surplus Q 2 Quantity Price ($ per unit) P 2 Q 3
Background image of page 8
Chapter 2: The Basics of Supply and Demand Slide 9 The Market Mechanism D S Q 1 Q 2 P 2 Shortage Quantity Price ($ per unit) Assume the price is P 2 , then: 1) Q d : Q 2 > Q s : Q 1 2) Shortage is Q 2 – Q 1 . 3) Producers raise price . 4) Quantity supplied increases and quantity demanded decreases. 5) Equilibrium at P 3 , Q 3 Q 3 P 3
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 2: The Basics of Supply and Demand Slide 10 D’ S’ Income Increases & raw material prices fall The increase in D is greater than the increase in S Equilibrium price and quantity increase to P 2 , Q 2 P Q S P 2 Q 2 D P 1 Q 1 Changes In Market Equilibrium
Background image of page 10
Slide 11 Example 1: Market for Eggs Q (million dozens) P ( 1970 dollars per dozen) D 1970 S 1970 $0.61 5,500 D 1998 S
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/09/2011 for the course ECON 111 taught by Professor Chan during the Spring '11 term at HKU.

Page1 / 36

chapter_2 - Supply and Demand The Supply Curve The supply...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online