《經(jīng)濟學基本原理》03 Basics of Supply and Demand

經(jīng)濟學原理：第三講5/17/2023Ch.3:BasicsofSupplyandDemand

A.TheDemandScheduleB.TheSupplyScheduleC.EquilibriumofSupplyandDemand2023/5/17Economicvs.EngineeringApproachGlobalprovenconventionaloilreserves:1,028,500,000,000barrelsGlobaloilconsumptionperday82,400,000barrels

Globaloilconsumptionperyear30,076,000,000barrelsQuestion:

Howmanyyearswilltheoilreservessupporttheglobaloilconsumption?35years?2023/5/17

UnfulfilledProphecyProfessorEhrlichatStanfordwarnedin1970thattheworldsupplyofoilandgasolinewillbeexhaustedby2000Thisprediction,whichwaselaboratedinthebookTheLimitofGrowth,publishedbytheClubofRome,shockedtheworld.Theoilpriceskyrocketedby350%during1973－1974Buttheoilcrisisdidn’tcome,andoilpricesfluctuatedinthepast40years.2023/5/17

ForcesoftheMarketMechanism2023/5/17

A.TheDemandCurveTheDemandCurveTherelationshipbetweenthequantityofagoodthatconsumersarewillingtobuyandthepriceofthegoodMeasuresquantityonthex-axisandpriceonthey-axis2023/5/17

TheDemandCurve2023/5/17DQuantity

Price($perunit)P2Q1P1Q2Thedemandcurveslopesdownward,demonstratingthatconsumersarewillingtobuymoreatalowerpriceastheproductbecomesrelativelycheaper.

LawofDemandQuantitydemandedtendstofallaspricerisesThisisdrivenbytwoeffectsThesubstitutioneffect:Agoodbecomesrelativelymoreexpensivewhenitspricerises,whichmakesconsumersshiftdemandforothergoodsTheincomeeffect:Whenapricegoesup,consumersfindthemselvessomewhatpoorerthantheywerebefore2023/5/17

ForcesbehindTheDemandCurveOtherFactorsAffectingDemandIncomeIncreasesinincomeallowconsumerstopurchasemoreatallpricesConsumerTastesMarketsizemeasuredbythepopulationPriceofRelatedGoodsSubstitutesComplements2023/5/17ChangeinDemand2023/5/17IncomeIncreasesPurchasedQ0,atP2andQ1atP1NowpurchasedQ1atP2andQ2atP1SameforallpricesDemandcurveshiftsright

TwoDifferentKindsofChangesinDemandChangesinquantitydemandedMovementsalongthedemandcurvecausedbyachangeinpriceShiftsindemandAshiftoftheentiredemandcurvecausedbysomethingotherthanpriceIncomePreferences………2023/5/17B.TheSupplyCurveTheSupplyCurveTherelationshipbetweenthequantityofagoodthatproducersarewillingtosellandthepriceofthegoodMeasuresquantityonthex-axisandpriceonthey-axis2023/5/17TheSupplyCurve2023/5/17TheSupplyCurve,GraphicallyDepictedThesupplycurveslopesupward,demonstratingthatathigherpricesfirmswillincreaseoutputTheSupplyCurveOtherFactorsAffectingSupplyCostsofProductionLaborCapitalRawMaterialsTechnologicaladvances:PricesofAlternativeOutputs:Governmentpolicy:taxorsubsidy2023/5/17

ChangeinSupply2023/5/17ThecostofrawmaterialsfallsProducedQ1atP1andQ0atP2NowproduceQ2atP1andQ1atP2SupplycurveshiftsrighttoS’

TwoKindsofChangesinSupplyChangeinQuantitySuppliedMovementalongthecurvecausedbyachangeinpriceShiftsinSupplyShiftofthecurvecausedbyachangeinsomethingotherthanthepriceofthegoodChangeincostsofproductionChangeingovernmentpolicy(e.g.,imports)2023/5/17

C.EquilibriumofDemandandSupplyThemarketmechanismisthetendencyinafreemarketforpricetochangeuntilthemarketclearsMarketsclearwhenquantitydemandedequalsquantitysuppliedattheprevailingpriceMarketclearingprice–priceatwhichmarketsclear,thatis,whensupplymeetsdemand.2023/5/17

TheMarketEquilibrium2023/5/17Thecurvesintersectatequilibrium,ormarket-clearing,price.QuantitydemandedequalsquantitysuppliedatP0

TheMarketEquilibriumInequilibriumThereisnoshortageorexcessdemandThereisnosurplusorexcesssupplyQuantitysuppliedequalsquantitydemandedAnyonewhowantstobuyatthecurrentpricecanbuyandallproducerswhowanttosellatthatpricecansell.2023/5/17

WhatiftheMarketDoesn’tClearSupplyanddemandinteracttodeterminethemarket-clearingpriceWhennotinequilibrium,themarketwilladjusttoalleviateashortageorsurplusandreturnthemarkettoequilibriumMarketsmustbecompetitive(manysmallbuyersandsellers)forthemechanismtobeefficient.2023/5/17

MarketSurplusThemarketpriceisaboveequilibriumThereisexcesssupply-surplusDownwardpressureonpriceQuantitydemandedincreasesandquantitysupplieddecreasesThemarketadjustsuntilnewequilibriumisreached2023/5/17

TheSurplusCase2023/5/17AtP1,priceisabovethemarketclearingpriceQs>QDPricefallstothemarket-clearingpriceMarketadjuststoequilibrium

WhenSupplyDoesn’tCatchupwithDemandThemarketpriceisbelowequilibrium:Thereisexcessdemand-shortageUpwardpressureonpricesQuantitydemandeddecreasesandquantitysuppliedincreasesThemarketadjustsuntilthenewequilibriumisreached2023/5/17TheShortageCase2023/5/17AtP2,priceisbelowthemarketclearingpriceQD>QSPricerisestothemarket-clearingpriceMarketadjuststoequilibrium

ChangesinMarketEquilibriumEquilibriumpricesaredeterminedbytherelativelevelofsupplyanddemandChangesinsupplyand/ordemandwillcausechangeintheequilibriumpriceand/orquantityinafreemarket2023/5/17

ChangesinMarketEquilibrium2023/5/17RawmaterialpricesfallSshiftstoS’SurplusatP1betweenQ1,Q2PriceadjuststoequilibriumatP3,Q3

ChangesinMarketEquilibrium2023/5/17IncomeIncreasesDemandincreasestoD’ShortageatP1ofQ1toQ2EquilibriumatP3andQ3

ChangesinMarketEquilibrium2023/5/17IncomeincreasesandrawmaterialpricesfallQuantityincreasesIftheincreaseinDisgreaterthantheincreaseinS，pricealsoincreases

ShiftsinSupplyandDemandWhensupplyanddemandchangesimultaneously,theimpactontheequilibriumpriceandquantityisdeterminedby:TherelativesizeanddirectionofthechangesTheshapeofthesupplyanddemandcurvesFourcasesofpriceandquantitychanges(Table3.6)2023/5/17

TheEconomicsofImmigrationOnewouldexpectthatimmigrationintoaregionincreasessupplyandpushesdownwagesEconomicstudiesshowthatintheUnitedStatesa10%increaseinthefractionofimmigrantsinthepopulationreducesnativewagesbyatmost1%Why?Newimmigrantstendtomovetocitieswithstronglabordemandandquicklyspreadaroundtheentirecountrywhilenativesmaymoveoutifthewageisdrivendown2023/5/17

MoreRoad,MoreTraffic?Trafficjamsaretheheadacheofcityplannersandordinaryp