Lecture Macroeconomics - Chapter 3: Individual markets: Demand and supply

Chapter 3 - Individual markets: Demand and supply. After studying this chapter you will be able to understand: What markets are, what demand is and what factors affect it, what supply is and what factors affect it, how demand and supply together determine market equilibrium.

CHAPTER INDIVIDUAL MARKETS Demand & Supply p S D q S LIDES  PREPARED BY JUDITH S KUCE, GEORGIAN COLLEGE © 2002 McGraw-Hill Ryerson Ltd Chapter In In this this chapter chapter you you will will learn learn What markets are What demand is and what factors affect it What supply is and what factors affect it How demand and supply together determine market equilibrium © 2002 McGraw-Hill Ryerson Ltd Chapter CHAPTER CHAPTER 33 TOPICS TOPICS MARKETS DEMAND SUPPLY SUPPLY & DEMAND: MARKET EQUILIBRIUM © 2002 McGraw-Hill Ryerson Ltd Chapter 3 MARKETS MARKETS HOW ARE PRICES DETERMINED IN A MARKET SYSTEM? BY INTERACTION BETWEEN BUYERS SELLERS IN MARKETS BY MARKETS WE MEAN… © 2002 McGraw-Hill Ryerson Ltd Chapter INSTITUTIONS THAT BRING TOGETHER BUYERS AND SELLERS © 2002 McGraw-Hill Ryerson Ltd Chapter MARKETS MARKETS for example: – corner gas station – farmer’s market – Toronto Stock Exchange – etc © 2002 McGraw-Hill Ryerson Ltd Chapter ASSUMPTIONS ASSUMPTIONS Competitive markets: many independent buyers & sellers standardized products © 2002 McGraw-Hill Ryerson Ltd Chapter CHAPTER CHAPTER 33 TOPICS TOPICS MARKETS DEMAND SUPPLY SUPPLY & DEMAND: MARKET EQUILIBRIUM © 2002 McGraw-Hill Ryerson Ltd Chapter DEMAND DEMAND a schedule or a curve that shows the various amounts consumers are willing and able to purchase at each of a series of possible prices, during some specified period of time © 2002 McGraw-Hill Ryerson Ltd Chapter DEMAND DEMAND The information can be presented in a demand schedule DEMAND © 2002 McGraw-Hill Ryerson Ltd P Qd $1 80 $2 55 $3 35 $4 20 $5 10 Chapter 10 Equilibrium Equilibrium Figure 3-5 $3 is the equilibrium price S Price (per bushel) QD=QS D 0 10 12 14 16 18 Bushels of corn (thousands per week) © 2002 McGraw-Hill Ryerson Ltd Chapter 60 Changes Changes in in Supply, Supply, Demand Demand & & Equilibrium Equilibrium changes in demand or supply will affect the equilibrium price and quantity © 2002 McGraw-Hill Ryerson Ltd Chapter 61 INCREASE IN DEMAND P D1 D2 S p1 q1 q3 Q An increase in demand will cause: a shortage at the original price p1 © 2002 McGraw-Hill Ryerson Ltd Chapter 62 INCREASE IN DEMAND P D1 D2 S p2 p1 q1 q2 q3 price has increased from p1 to p2, quantity traded has increased from q1 to q2 Q an Consumers will bid price up to pNOT increase in QS will increase, QD will decrease new equilibrium reached at p2supply , q2 © 2002 McGraw-Hill Ryerson Ltd Chapter 63 DECREASE IN DEMAND D1 P D2 S p1 q3 q1 Q An decrease in demand will cause: a surplus at the original price p1 © 2002 McGraw-Hill Ryerson Ltd Chapter 64 DECREASE IN DEMAND P D2 D1 p1 p2 q3 q2 q1 S price has decreased from p1 to p2, quantity traded has decreased from q1 to q2 Q Producers will drop price to p2 NOT a decrease in QS will decrease, QD will increase new equilibrium reached at p2supply , q2 © 2002 McGraw-Hill Ryerson Ltd Chapter 65 INCREASE IN SUPPLY P S1 D S2 p1 q1 q3 Q An increase in supply will cause: a surplus at the original price p1 © 2002 McGraw-Hill Ryerson Ltd Chapter 66 INCREASE IN SUPPLY P D S1 S2 p1 p2 q1 q2 q3 price has decreased from p1 to p2, quantity traded has increased from Q q1 to q2 Producers will drop price to p2 QS will decrease, QD will increase new equilibrium reached at p2, q2 © 2002 McGraw-Hill Ryerson Ltd Chapter 67 DECREASE IN SUPPLY P D S2 S1 p1 q3 q1 Q An decrease in supply will cause: a shortage at the original price p1 © 2002 McGraw-Hill Ryerson Ltd Chapter 68 DECREASE IN SUPPLY P D S2 S1 p2 p1 q3 q2 q1 price has increased from p1 to p2, quantity traded has decreased from Q q1 to q2 Consumers will bid price up to p2 QS will increase, QD will decrease new equilibrium reached at p2, q2 © 2002 McGraw-Hill Ryerson Ltd Chapter 69 Complex Complex Cases Cases when both supply and demand change, the effect is a combination of the individual effects if both demand and supply shift, one of either price or quantity cannot be predicted–-the result is indeterminate © 2002 McGraw-Hill Ryerson Ltd Chapter 70 Complex Complex Cases Cases Table 3-9 Change in Change in Effect on supply demand equilibrium price Effect on equilibrium quantity Increase Decrease Decrease Indeterminate Decrease Increase Increase Indeterminate Increase Increase Indeterminate Increase Decrease Decrease Indeterminate Decrease © 2002 McGraw-Hill Ryerson Ltd Chapter 71 Complex Complex Cases Cases A Reminder: “Other Things Equal” Application: Pink Salmon © 2002 McGraw-Hill Ryerson Ltd Chapter 72 CHAPTER CHAPTER 33 TOPICS TOPICS MARKETS DEMAND SUPPLY SUPPLY & DEMAND: MARKET EQUILIBRIUM © 2002 McGraw-Hill Ryerson Ltd Chapter 73 N O O S G N I M CO An Overview of the Market System & the Canadian Economy Chapter © 2002 McGraw-Hill Ryerson Ltd Chapter 74 ... McGraw-Hill Ryerson Ltd Chapter DEMAND DEMAND The information can be presented in a demand schedule DEMAND © 2002 McGraw-Hill Ryerson Ltd P Qd $1 80 $2 55 $3 35 $4 20 $5 10 Chapter 10 DEMAND DEMAND... MARKETS DEMAND SUPPLY SUPPLY & DEMAND: MARKET EQUILIBRIUM © 2002 McGraw-Hill Ryerson Ltd Chapter DEMAND DEMAND a schedule or a curve that shows the various amounts consumers are willing and able... Ryerson Ltd Chapter 22 CHANGE IN DEMAND PA D D’ QA when any OTHER determinant changes shift in the demand curve © 2002 McGraw-Hill Ryerson Ltd Chapter 23 CHANGE CHANGE IN IN DEMAND DEMAND Demand Shifters