Presentation Transcript

1. Demand and Supply

2. Demand A relationship between price and quantity demanded in a given time period, ceteris paribus. Cēterīs paribus(Latin phrase), literally translated as "with other things the same." It is commonly rendered in English as "all other things being equal."
3. Demand schedule
4. Demand curve (film)
5. Law of demand An inverse relationship exists between the price of a good and the quantity demanded in a given time period, ceteris paribus. Reasons: We want to buy goods as cheap as possible We have limited amount of money.
6. Change in quantity demanded vs. change in demand Change in quantity demanded Demand shocks
7. Market demand curve Market demand is the horizontal summation of individual consumer demand curves
8. Determinants of demand tastes and preferences prices of related goods and services income number of consumers expectations of future prices and income
9. Tastes and preferences Effect of fads:
10. Prices of related goods substitute goods – an increase in the price of one results in an increase in the demand for the other. Example: tea and coffee complementary goods – an increase in the price of one results in a decrease in the demand for the other. Example: car and fuel
11. Change in the price of a substitute good Price of coffee rises:
12. Change in the price of a complementary good Price of DVDs rises:
13. Income and demand: normal goods A good is a normal good if an increase in income results in an increase in the demand for the good.
14. Income and demand: inferior goods A good is an inferior good if an increase in income results in a reduction in the demand for the good.
15. Demand and the number of buyers An increase in the number of buyers results in an increase in demand.
16. Expectations A higher expected future price will increase current demand. A lower expected future price will decrease current demand. A higher expected future income will increase the demand for all normal goods. A lower expected future income will reduce the demand for all normal goods.
17. Supply the relationship that exists between the price of a good and the quantity supplied in a given time period, ceteris paribus.
18. Supply schedule
19. Law of supply A direct relationship exists between the price of a good and the quantity supplied in a given time period, ceteris paribus.
20. Change in supply vs. change in quantity supplied Supply shock Change in quantity supplied
21. Individual firm and market supply curves The market supply curve is the horizontal summation of the supply curves of individual firms.
22. Determinants of supply the price of resources, technology and productivity, the expectations of producers, the number of producers, the prices of related goods and services note that this involves a relationship in production, not in consumption
23. Price of resources As the price of a resource rises, profitability declines, leading to a reduction in the quantity supplied at any price.
24. Technological improvements Technological improvements (and any changes that raise the productivity of labour) lower production costs and increase profitability.
25. Expectations and supply An increase in the expected future price of a good or service results in a reduction in current supply.
26. Increase in the number of sellers
27. Prices of other goods Firms produce and sell more than one commodity. Firms respond to the relative profitability of the different items that they sell. The supply decision for a particular good is affected not only by the good’s own price but also by the prices of other goods and services the firm may produce.
28. International effects Firms import raw materials (and often the final product) from foreign countries. The cost of these imports varies with the exchange rate. When the exchange value of PLN rises, the domestic price of imported inputs will fall and the domestic supply of the final commodity will increase. A decline in the exchange value of the PLN raises the price of imported inputs and reduce the supply of domestic products that rely on these inputs.
29. Market equilibrium
30. Price above equilibrium If the price exceeds the equilibrium price, a surplus occurs:
31. Price below equilibrium If the price is below the equilibrium a shortage occurs:
32. Demand rises
33. Demand falls
34. Supply rises
35. Supply falls
36. Price ceiling(film) Price ceiling - legally mandated maximum price Purpose: to keep price below the market equilibrium price to protect the poor consumers – they can buy products at lower prices than at the free market Examples: rent controls price controls during wartime price controls during socialism time Binding and non-binding price ceiling
37. Price ceiling – maximum prices
38. Results of price ceiling (maximum price): The demand exceeds the supply Long queues in shops Black market grows Rationing of goods – ration coupons Double currencies system Domestic currency loses its value – inflation
39. Results of price ceiling (maximum price) introduction: No innovations Mass production The quality of goods falls Standstill of economy development Vertical price control Horizontal price control
40. Calculation of shortage (film)
41. Price floor(film) price floor - legally mandated minimum price designed to maintain a price above the equilibrium level A price floor must be set above the free-market equilibrium price, otherwise it has no effect examples: agricultural price supports minimum wage laws
42. Price floor – minimum price
43. Results of price floor introduction The supply exceeds the demand What to do with production surplus? To Export – no countries want to buy Intervention purchase – for taxpayers money To store – for taxpayers money To destroy – for taxpayers money Producers who can’t sell by means of intervention purchase must sell at the black market (illegally) Problems with abolishing of the price floor – huge reserves The quality of goods goes down
44. Surplus calculation (film)
45. Short presentation Examples of floor prices Examples of ceiling prices
46. Bibliography Czarny B. „Podstawy Ekonomii” Begg D., „Economics” http://www.oswego.edu/~kane/eco101.htm