Transcript No Slide Title

ECONOMICS 200
PRINCIPLES OF MICROECONOMICS
Professor Lucia F. Dunn
Department of Economics
1
Three Ways to Represent Supply
• 1. A Schedule
• 2. A Curve
• 3. An Equation or function
2
Supply Schedule
Let’s consider the supply schedule for beer at OSU.
We derive a supply schedule by taking survey of all the manufactures of
beer that students drink and asking them how much beer they would
produce to sell to the university community in a month at various prices.
By adding up the different quantities, we could get a schedule which
might be like this.
P ($ per pack)
$
50
1.
00
2.
50
2.
00
3.
50
3.
Qs (per month)
50,000
85,000
115,000
135,000
170,000
3
Supply Curve
Now, the information in the table of the beer supply schedule
translates directly into a supply curve.
4.00
Supply Curve
3.50
P ($/pack)
3.00
2.50
2.00
1.50
1.00
0.50
0.00
0
20
40
60
80
100
120
140
160
180
Q (packs/thousand)
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Law of Supply
- Price and quantity move in the same direction on a
supply curve.
-Supply function: QS = g(p)
Example: QS = 5 + 0.4p
- Supply curve is upward sloping
5
Why Supply Slopes Upward
1. As production is expanded, producers have to turn to less
efficient facilities and resources.
These less efficient resources will be more expensive in that we
will get less output per unit of input of these poorer resources.
So producers have to be offered a higher price to coax out this
more expensive production.
2. In an “open economy” (i.e. where there is international trade ),
a high price will induce suppliers to import product from
abroad.
6
Change in QS v.s. Change in Supply
Change in Quantity Supplied:
A movement along a single supply curve.
P
S
PB
PA
B
A
Q
QA QB
Change in Supply:
A shift of the entire supply curve due to a change in a ceteris factor.
P
S1
Q
S2
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Change in Supply
Ceteris Paribus Factors
1. Price of Inputs
2. Technology
3. Number of Suppliers
8
Shift in Supply Curve
If there is a decrease in the price of inputs which makes production cheaper,
then at every price, more commodities will be forthcoming. So, the supply
curve would have shifted out to the right.
p
S1
S2

p
Q1
Q2
QBeer
This means that at any price, manufacturers now be supplying more beer: Q1  Q2
9
Shift in Supply Curve
Or,
p
S1
S2
p1
p2

Q
QBeer
This means that manufacturers are willing to supply the same quantity of beer at
a lower price: P1  P2
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Change in Supply
Ceteris Paribus Factors
1. Price of Inputs
2. Technology
3. Number of Suppliers
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Equilibrium Price & Quantity
equilibrium
p
S
pE
D
QE
Q
Market Equilibrium
12
Equilibrium Price & Quantity
If we had supply and demand equations, we could solve them
simultaneously for PE and QE.
Example:
Solve:
D:
Q = 30 - 0.2 p
S:
Q = 20 + 0.3 P
30 - 0.2 p = 20 + 0.3 p
- 0.5 p = - 10
p = 20
Q = 20 + 0.3 (20) = 26
So:
PE = 20
QE = 26
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What if we get out of equilibrium? (1)
If prevailing P > PE
p
excess supply or
surplus
S
p1
pE
Buyers’
Market
D
QD
QS
Q
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What if we get out of equilibrium? (2)
If prevailing P < PE
p
S
pE
Sellers’
Market
p1
D
excess demand
or shortage
QS
QD
Q
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Comparative Static Analysis (1)
Case 1: Demand Decreases
p
S
1
p1
2
p2
D1
D2
Q2
Q1
Outcome: P   Q 
Q
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Comparative Static Analysis (2)
Case 2: Demand Increases
p
S
2
p2
1
p1
D2
D1
Q1
Q2
Outcome: P   Q 
Q
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Comparative Static Analysis (3)
Case 3: Supply Increases
p
p1
S1
S2
1
2
p2
D
Q1
Q2
Outcome: P   Q 
Q
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Comparative Static Analysis (4)
Case 4: Supply Decreases
p
p2
S2
S1
2
1
p1
D
Q2
Q1
Outcome: P   Q 
Q
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Comparative Static Analysis (5)
Case 5: Both Demand & Supply Decrease
p
S2
S1
p1
p2
1
2
D1
D2
Q2
Q1
Outcome: P ?  Q 
Q
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Comparative Static Analysis (6)
Case 6: Demand Decreases & Supply Increases
p
S1
1
p1
p2
S2
2
D1
D2
Q1 Q2
Outcome: P   Q ?
Q
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Comparative Static Analysis (7)
Case 7: Both Demand Supply Increase
p
p1
p2
S1
S2
1
2
D2
D1
Q1
Q2
Outcome: P ?  Q 
Q
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Comparative Static Analysis (8)
Case 8: Demand Increases & Supply Decreases
p
S2
S1
2
p2
p1
1
D2
D1
Q2 Q1
Outcome: P   Q ?
Q
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