Transcript power point on demand and supply

DEMAND
What Buyers are Willing and Able
to Buy, during a given Time
Period, ceteris paribus.
KEY POINTS ABOUT
DEMAND
“WILLINGNESS AND ABILITY” (not
stridently wanting)
 “BUYERS” (not sellers)
 “during a given time period” is a FLOW
(not a STOCK)
 “ceteris paribus”- all other things are
held constant except price and quantity.
 Whole set of P-Q combinations (not
QUANTITY DEMANDED)

GENERALIZED DEMAND FUNCTION
f = f( Price:
Taxes,
Price of Complements
Price of Substitutes
Tastes for good/service
Income,
Buyer Expectations,
Number of buyers)
P
Q
SUPPLY
What Buyers
XXXXX Sellers are Willing and
Able to XXX
buy Sell, during a given Time
Period, ceteris paribus.
KEY POINTS ABOUT
SUPPLY
“WILLINGNESS AND ABILITY” (not
stridently wanting)
XXXXXXXXXXXXXXXXXXX
 “BUYERS”
(not sellers) Sellers (not buyers)

“during a given time period” is a FLOW
(not a STOCK)
 “ceteris paribus”- all other things are
held constant except price and quantity.
 Whole set of P-Q combinations (not
QUANTITY XXXXXXXXXXX
DEMANDED) SUPPLIED

GENERALIZED SUPPLY FUNCTION
f = f( Price:
Price of Resources
Technology,
Seller Expectations,
Number of Sellers)
HOW TO BE SHERLOCK HOLMES
IN READING BETWEEN THE LINES
If You Know P and Q then you know whether demand or supply
is involved as well as the direction of the shift.
If You Know the shift in demand or supply, then you know what
is likely to happen to price and quantity
If You Know the determinant that has changed and price,
then you know what is happening to quantity demanded.
If You Know the determinant that has changed and quantity demanded,
then you know what is happening to price.
Lower Price
Lower
Output
Higher Price
Leftward
(downward)
Shift of Demand
Leftward
(upward)
Shift of
Supply
Higher
Output
Rightward
(downward)
Shift of
Supply
Rightward
(upward)
Shift of Demand
Breakdown all shifts into their output and price vectors
MARKET BOUNDARIES
BUYER POINT OF VIEW: No potential
seller exists outside of the market
boundaries (within a reasonable price
range)
 SELLER POINT OF VIEW: No potential
buyer exists outside of the market
boundaries (within a reasonable price
range)
 BOTH POINTS OF VIEW MUST HOLD
 CROSS PRICE ELASTICITY measures

MARKET BOUNDARIES
X represents buyers
O represents sellers
X
X
O
O
X
X
X
O
MARKET DEMAND FOR CARS
Price
($1000/car)
Price
($1000/car)
Price
($1000/car)
30
15
7 9
45
11
14
U.S quantity (mill/yr) + Foreign Q (mill/yr) = Market Demand
MUSTANG DEMAND
GAINS-LOSS=$2974 M.
Price of Mustangs
9510
8000
TR= $1426 million
TR= $4400 Million
GAIN
LOSS
DEMAND
150
550
(000’s Mustangs/year)
N represents a new firm
U represents your firm
MARKET BOUNDARIES
X represents buyers
O represents sellers
X
X
O
X
N
X
X
U
O
O
Cross Price Elasticity w.r.t. New Firm?
N represents a new firm
U represents your firm
MARKET BOUNDARIES
X represents buyers
O represents sellers
X
X
N
O
X
X
X
U
O
O
Cross Price Elasticity w.r.t. New Firm?
Positive , Negative, or Zero
Percentage Change
0.5
0.4
0.3
0.2
0.1
0
-0.1
-0.2
-0.3
-0.4
-0.5
75
85
95
Oil
Line 2
Auto Sales
Percentage Change
0.5
0.4
0.3
0.2
0.1
0
-0.1
-0.2
-0.3
-0.4
-0.5
75
85
95
Oil
Line 2
Auto Sales