Lecture Microeconomics: Theory and applications (12/e): Chapter 2 - Browning, Zupan

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MICROECONOMICS: Theory & Applications
Learning Objectives
2.1 Demand and Supply Curves
Demand and Supply Curves
The Demand Curve
Figure 2.1 – A Demand Curve
Determinants of Demand Other Than Price
Drawing a Demand Curve
Shifts in versus Movements along a Demand Curve
Figure 2.2 - An Increase in Demand
The Supply Curve
Figure 2.3 – A Supply Curve
Determinants of Supply Other Than Price
Drawing a Supply Curve
Shifts in versus Movement along a Supply Curve
Figure 2.4 - An Increase in Supply
2.2 Determination of Equilibrium Price and Quantity
Determination of Equilibrium Price and Quantity
Figure 2.5 - Determination of Equilibrium Price and Quantity
Disequilibrium
2.3 Adjustment to Changes in Demand or Supply
Adjustment to Changes in Demand or Supply
Figure 2.6 – Market Adjustments to Changes in Demand and Supply
Using the Supply-Demand Model to Explain Market Outcomes
Figure 2.7 - Using the Supply-Demand Model to Explain Market Outcomes
2.4 Government Intervention in Markets: Price Controls
Government Intervention in Markets: Price Controls
Rent Control
Figure 2.8 - Rent Control
Who Loses, Who Benefits?
Black Markets
2.5 Elasticities
Elasticities
Price Elasticity of Demand
Calculating Price Elasticity of Demand
Example: Small Differences
Example: Large Differences
Slide 38
Ranges of Price Elasticity of Demand
Figure 2.9 - Price Elasticity of Demand and Total Expenditure
Demand Elasticities Vary among Goods
Table 2.1
Three Other Elasticities
Three Other Elasticities (continued)
Slide 45
2.6 The Mathematics Associated with Elasticities*
The Mathematics Associated with Elasticities
The Mathematics Associated with Elasticities (continued)
Mathematical Equations
Mathematical Equations (continued)

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Chapter 2 - Supply and demand. In this chapter students will be able to: Understand how the behavior of buyers and sellers can be characterized through demand and supply curves, explain how equilibrium price and quantity are determined in a market for a good or service, analyze how a market equilibrium is affected by changes in demand or supply,...

Prepared by Dr. Della Lee Sue, Marist College MICROECONOMICS: Theory & Applications Chapter 2: Supply and Demand By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc 12th Edition, Copyright 2015 Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Learning Objectives       Understand how the behavior of buyers and sellers can be characterized through demand and supply curves Explain how equilibrium price and quantity are determined in a market for a good or service Analyze how a market equilibrium is affected by changes in demand or supply Explore the effects of government intervention in markets and how a price ceiling impacts price, quantity supplied, quantity demanded, and the welfare of buyers and sellers Show how elasticities provide a quantitative measure of the responsiveness of quantity demanded or supplied to a change in some other variable such as price or income Explain the mathematics associated with elasticities Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Understand how the behavior of buyers and sellers can be characterized through demand and supply curves 2.1 DEMAND AND SUPPLY CURVES Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Demand and Supply Curves      Supplydemand model: competitive interaction of sellers and buyers Determination of market price and quantity Response to changes in other economic variables Incorporate forms of government intervention, such as price controls Quantitative as well as qualitative market changes Copyright © 2015 John Wiley & Sons, Inc. All rights reserved The Demand Curve     LAW OF DEMAND: the lower the price of a good, the larger the quantity consumers wish to purchase “Demand” versus “Quantity demanded” Negatively slope Assumption: all other factors remain constant Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2.1 – A Demand Curve Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Determinants of Demand Other Than Price    Income  Normal goods  Inferior goods Prices of related good  Complements  Substitutes Tastes or preferences Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Drawing a Demand Curve  Graph:  “Quantity” is measured along the horizontal axis  “Price” is measured along the vertical axis  Other factors (incomes, prices of related goods, and preferences) – same at all points on the curve  Law of Demand: demand curve slopes downward Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Shifts in versus Movements along a Demand Curve  Movement along a demand curve:  a change in quantity demanded in response to a change in the good’s own price, other factors held constant  Movement up curve: increase in good’s own price  Movement down curve: decrease in good’s own price  Shift of a demand curve:  a change in the demand curve in response to a change in income, prices of related goods, or preferences  Rightward shift: increase in demand  Leftward shift: decrease in demand Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2.2 An Increase in Demand Copyright © 2015 John Wiley & Sons, Inc. All rights reserved 10 Example: Small Differences Point Elasticity Formula Using P1 and Qd1: Using P2 and Qd2: Copyright © 2015 John Wiley & Sons, Inc. All rights reserved 36 Example: Large Differences Point Elasticity Formula a Using P1 and Qd1 (top line) b Using P2 and Qd2 (bottom line) Copyright © 2015 John Wiley & Sons, Inc. All rights reserved 37 Example: Large Differences Arc Elasticity Formula Copyright © 2015 John Wiley & Sons, Inc. All rights reserved 38 Ranges of Price Elasticity of Demand    Elastic: η > 1  Percentage change in quantity demanded is greater than the percentage change in price Unit elastic: η = 1  Percentage change in quantity demanded is equal to the percentage change in price Inelastic: η

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