Transcript Chapter 4
Macroeconomics ECON 2301 Spring 2009 Marilyn Spencer, Ph.D. Professor of Economics Chapter 4 Exam 1, February 12 Study Chapters 1 – 4. Come to the exam prepared to use: Textbook & notes 3”x5” card Only your brains & a pencil Scantron sheet will be provided. Teaching Project Orientation Fill out paperwork ahead of time. Select a teaching partner. Attend one of these 90-minute sessions, in FC 101, Feb. 11 or 12: 1 p.m. 3 p.m. 5 p.m. Chapter 4: Extensions of Demand and Supply Analysis Changes in Demand and Supply Changes in supply and demand create a disequilibrium. The market price and quantity adjust to a new equilibrium. Review of The D Side of the Mkt.: Variables That SHIFT Market Demand 1. Price of related goods Substitutes Goods and services that can be used for the same purpose. Complements Goods that are used together. 2. Income Normal good A good for which the demand increases as income rises and decreases as income falls. Inferior good A good for which the demand increases as income falls, and decreases as income rises. The Demand Side of the Market Variables That Shift Market Demand 3. Tastes 4. Population and demographics Demographics The characteristics of a population with respect to age, race, and gender. 5. Expectations Estimating the Demand for Printers at Hewlett-Packard Inaccurate forecasts in 2001 caused Hewlett-Packard to produce more printers than they could sell. When two goods, X and Y, are complements, which of the following occurs? a. An increase in the price of good X leads to an increase in the price of good Y. b. An increase in the price of good X leads to a decrease in the quantity demanded of good Y. c. An increase in the price of good X leads to a decrease in the quantity demanded of good Y. d. An increase in the price of good X leads to an increase in the quantity demanded of good Y. The Demand Side of the Market Variables That Shift Market Demand 3-1 Variables That Shift Market Demand Curves The Demand Side of the Market Variables That Shift Market Demand 3 - 1 (continued) Variables That Shift Market Demand Curves Refer to the graph below. Which of the following moves best describes what happens when a change in the price of printers affects the market demand for printers? a. b. c. d. A move from A to B. A move from A to C. Either move from A to B or A to C. None of the above. Figure 4-1 Shifts in Demand and in Supply: Determinate Results, Panel (a) Figure 4-1 Shifts in Demand and in Supply: Determinate Results, Panel (b) Which of the following defines a supply curve? a. The quantity of a good or service that a firm is willing to supply at a given price. b. A table that shows the relationship between the price of a product and the quantity of the product supplied. c. A curve that shows the relationship between the price of a product and the quantity of the product supplied. d. None of the above. The Supply Side of the Market The Law of Supply Law of supply Holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied. The Supply Side of the Market Variables That Shift Supply 1. Price of inputs 2. Technological change A positive or negative change in the ability of a firm to produce a given level of output with a given amount of inputs. 3. Prices of substitutes in production 4. Expected future prices 5. Number of firms in the market The Supply Side of the Market Variables That Shift Supply 3-2 Variables That Shift Market Supply Curves The Supply Side of the Market Variables That Shift Supply Variables That Shift Market 3 - 2 (continued) Supply Curves The Supply Side of the Market Variables That Shift Supply Refer to the graphs below. Each graph refers to the supply for printers. Which best describes the impact of an increase in productivity? a. The graph on the left. b. The graph on the right. c. Both graphs. d. Neither graph. Figure 4-1 Shifts in Demand and in Supply: Determinate Results, Panel (c) Figure 4-1 Shifts in Demand and in Supply: Determinate Results, Panel (d) The Falling Price of Large Flat-Screen Televisions Corning’s breakthrough spurred the manufacture of LCD televisions in Taiwan, South Korea, and Japan, and an eventual decline in price. Changes in Demand and Supply (cont'd) Summary Increases in demand increase equilibrium price and quantity. Decreases in demand decrease equilibrium price and quantity. Increases in supply decrease equilibrium price and increase quantity. Decreases in supply increase equilibrium price and decrease quantity. When BOTH Demand & Supply Are Shifting: High Demand and Low Prices in the Lobster Market: Supply and demand for lobster both increase in summer, but the supply increase EXCEEDS the demand increase; therefore, equilibrium price falls. Remember: A Change in a Good’s Price Does Not Cause the Demand or Supply Curve to Shift. Example: Why Gasoline Prices Increased over the Past 3 Years One factor—an increase in demand, shown by a rightward shift in the demand curve Another factor—a reduction in supply, shown by a leftward shift in the supply curve As a result, the equilibrium price of gasoline increased. Assignment to be completed before class February 12: Study for Exam 1!