KINH TẾ VI MÔ Chapter 2 demand supply

CHAPTER THE BASICS OF DEMAND & SUPPLY Supply and demand model —  The supply and demand model is a model of how a competitive market works —  Five key elements: ◦  Demand curve ◦  Supply curve ◦  Demand and supply curve shifts ◦  Market equilibrium ◦  Changes in the market equilibrium Demand 1.  2.  3.  4.  5.  Key definitions The law of demand Illustrating demand Determinants of demand Distinguishing moving along demand curve and demand shifting Demand 1.  -  Key Definitions Demand illustrates the amounts of commodity that buyers are willing and can afford to buy at different prices in a certain period of time given everything else held constant ü  Demand versus Need? - Quantity demanded is the amount of commodity that buyers are willing and can afford to buy at a certain price during a period of time given everything else held constant è Demand captures the whole relationship between price and quantity demanded - Individual demand: the demand of a single consumer - Market demand: the sum of the quantity demanded for each individual buyer at each price DEMAND The law of demand Given everything else held constant, the quantity demanded of a good will increase when the price decrease, and vice versa Ceteris Paribus P é QDê P ê QDé Illustrating demand - Demand schedule -  Demand curve -  Demand function Demand Schedule —  A demand schedule shows how much of a good or service consumers will want to buy at different prices Demand Schedule for Cotton Price of cotton (per pound) Quantity of cotton demanded (billions of pounds) $2.00 7.1 1.75 7.5 1.50 8.1 1.25 8.9 1.00 10.0 0.75 11.5 0.50 14.2 Demand Curve Price of cotton (per pound) A demand curve is the graphical representation of the demand schedule It shows how much of a good or service consumers want to buy at any given price $2.00 1.75 1.50 1.25 1.00 0.75 0.50 As price rises, the quantity demanded falls Demand curve, D 11 13 15 17 Quantity of cotton (billions of pounds) -  Demand function is a mathematical representation of the relationship between quantity demanded and demand determinants QD = f( P, Py, I, T, E, N) Where QD : Quantity demanded P : Price of the commodity Py : Price of related commodities I : Income E : Expectations N : Number of buyers SUMMARY 7.  A movement along the supply curve occurs when a price change leads to a change in the quantity supplied When economists talk of increasing or decreasing supply, they mean shifts of the supply curve—a change in the quantity supplied at any given price An increase in supply causes a rightward shift of the supply curve A decrease in supply causes a leftward shift SUMMARY 8.  9.  There are five main factors that shift the supply curve: • A change in input prices • A change in the prices of related goods and services • A change in technology • A change in expectations • A change in the number of producers The market supply curve for a good or service is the horizontal sum of the SUMMARY 10. The supply and demand model is based on the principle that the price in a market moves to its equilibrium price, or marketclearing price, the price at which the quantity demanded is equal to the quantity supplied This quantity is the equilibrium quantity When the price is above its market-clearing level, there is a surplus that pushes the price down SUMMARY 11.  An increase in demand increases both the equilibrium price and the equilibrium quantity; a decrease in demand has the opposite effect An increase in supply reduces the equilibrium price and increases the equilibrium quantity; a decrease in supply has the opposite effect SUMMARY 12. Shifts of the demand curve and the supply curve can happen simultaneously When they shift in opposite directions, the change in equilibrium price is predictable but the change in equilibrium quantity is not When they shift in the same direction, the change in equilibrium quantity is predictable but the change in equilibrium price is not In general, the curve that shifts the greater KEY TERMS —  —  —  —  —  —  —  —  —  —  —  —  Competitive market Supply and demand model Demand schedule Quantity demanded Demand curve Law of demand Shift of the demand curve Movement along the demand curve Substitutes Complements Normal good Inferior good —  —  —  —  —  —  —  —  —  —  —  —  —  Individual demand curve Quantity supplied Supply schedule Supply curve Shift of the supply curve Movement along the supply curve Input Individual supply curve Equilibrium price Equilibrium quantity Market-clearing price Surplus Shortage —  —  —  —  —  —  —  Consider the market for good X: P = 100 – 0.1Q P = 10 + 0.1Q (P: $/kg, Q: ton) a Determine the market equilibrium b If the Government imposes a price ceiling of 42$/kg and supplies the shortage amount, determine the price and quantity c If the Government doesn’t want to impose price ceiling but still desires the same outcome as (b), should the Gov impose tax or subsidize producers? Determine that subsidy or tax —  A market A.  B.  C.  D.  demand curve is derived by a vertical summation of individual demand curves is derived by a horizontal summation of individual demand curves will shift in response to a change in the price of the good is always steeper than an individual demand curve If buyers today become more willing and able than before to purchase larger quantities of Vanilla Coke at each price of Vanilla Coke, A we will observe a movement downward along the demand curve for Vanilla Coke b we will observe a movement upward along the demand curve for Vanilla Coke c the demand curve for Vanilla Coke will shift to the right d the demand curve for Vanilla Coke will shift to the left —  —  During the last decade, we observe that the price of laptop has fallen sharply while the quantity has increased This fact can be explained by which of the following events? a.  The introduction of tablet b.  Financial crisis c.  Technological advance in laptop production d.  Higher income —  What will happen if the price of Urban Station coffee goes up? a.  Demand curve for Urban shift rightward b.  Demand curve for Urban shift leftward c.  Demand curve for The coffee Inn shift rightward d.  Demand curve for The Coffee Inn shift leftward —  An increase in the price of oranges would lead to a.  an increased supply of oranges b.  a reduction in the prices of inputs used in orange production c.  an increased demand for oranges d.  a movement up and to the right along the supply curve for oranges —  Another a.  b.  c.  d.  term for equilibrium price is dynamic price market-clearing price quantity-defining price satisfactory price —  If at the current price,there is a shortage of a good, a sellers are producing more than buyers wish to buy b the market must be in equilibrium c the price is below the equilibrium price d quantity demanded equals quantity supplied —  A weaker demand together with a stronger supply would necessarily result in a a lower price b a higher price c an increase in equilibrium quantity d a decrease in equilibrium quantity .. .Supply and demand model —  The supply and demand model is a model of how a competitive market works —  Five key elements: ◦  Demand curve ◦  Supply curve ◦  Demand and supply curve... market equilibrium Demand 1.  2.   3.  4.  5.  Key definitions The law of demand Illustrating demand Determinants of demand Distinguishing moving along demand curve and demand shifting Demand 1.  - ... and quantity demanded - Individual demand: the demand of a single consumer - Market demand: the sum of the quantity demanded for each individual buyer at each price DEMAND The law of demand Given