Chapter 2 The Price SystemWord下载.docx
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IndividualDemand&
Marketdemand
•Theindividualdemandistherelationshipbetweenthequantitydemandedbyasinglebuyeranditsprices
•Themarketdemandistherelationshipbetweenthetotalquantitydemandedbyallconsumersinthemarketanditsprice.
Themarketdemandcurveisthehorizontalsumoftheindividualdemandcurves!
ChangesinQuantityDemanded&
ChangesinDemand
•Changesinquantitydemandedresultinmovementalongthedemandcurvedueachangeinpricewhileotherfactorsremainconstant.(upward/downwardmovement)CeterisParabus!
!
•Changeindemandistheshiftofthedemandcurvedueachangeinotherfactorswhilepriceremainsconstant.(leftward/rightwardshift)
•OtherFactorsthatinfluencedemand
•Thefinancialabilitytopay
•Effectivedemand
•Ourattitudestotheproductitself
•Psychological
•Speculativedemand
•Theprice,availabilityandattractivenessofrelatedproducts
•Substitutegoods,complementarygoods,jointdemand
ShiftsinTheDemandCurve
•Wehaveseenthatachangeinthepriceofanormalgoodwillcauseachangeinthequantitydemanded
•Buttherearethingsotherthanpricethatinfluencedemandforaproduct
•What?
•ChangeinDemand
•Ashiftinthedemandcurveeithertotheleftorrightcausedbyanychangesthataltersthequantitydemandedateveryprice.Suchas:
•Income
•Pricesofrelatedgoods
•Tastes
•Expectations
•Numberofbuyers
ChangesinConsumerIncome
•Goodscanbeclassifiedintotwobroadcategories:
▪Normalgoods:
thedemandincreaseswhenincomeincreasesanddecreaseswhenincomedecreases
▪Inferiorgoods:
thedemanddecreaseswhenincomeincreasesandincreaseswhenincomedecreases
•Thinkofsomeexamplesofnormalgoodsandinferiorgoods
•Normal
•Smoothies/FreshJuice
•LevisJeans
•Taxis
•BusinessClassairfares?
•Inferior
•Supermarketownbrandgoods
•PublicTransport
•InstantNoodles
•SecondHandcars
•Economyclassairfares?
•Payasyougo,Mobilephones?
•TinnedFood?
ChangesinPriceofRelatedGood
(i)SubstituteGoods
-Aproductthatcanbeusedinplaceofanotherproduct
-Achangeinthepriceofsubstituteproductsaffectthedemandfortheproductinthesamedirectioninwhichthepricechange.
-E.g:
teavscoffee;
abusridevsanLRTride
(Pcoffee↑Qddcoffee↓DDtea↑)
•ChangesinPriceofRelatedGood
(ii)ComplementaryGoods
-Aproductthatisusedinconjunctionwithanotherproduct.
-Thechangeinthepriceofacomplementaryproductaffectsthedemandfortheproductintheoppositedirectiontothechangeprice.
adiskandcomputer,penandink.
(Ppen↑Qddpen↓DDink↓)
Taste&
Preference
–Tastesandpreferencesofconsumerschangesignificantly.
–Ifaproductbecomemorefashionable,thedemandforitwillincreaseandifthesameproductbecomesoutdated,thedemandforitwillfall.
–E.g:
Changesinmusic,apparelorrecreation.
Expectations
–Thehighertheexpectedfuturepriceofaproduct,thehigherthecurrentdemandforthatproductandviceversa.
Whenthegovernmentplanstoincreasethepriceofsugarthefollowingweek,thedemandforsugarwillimmediatelyincrease.
PopulationorNumberofBuyers
–Alargerpopulationwithahighrateofgrowthcreatesgreaterdemandforgoodsandservices.
AnincreaseinthepopulationofUTARwouldincreasethedemandforhouses,F&
B,andothergoodsandservices.
ExceptionstotheLawofdemand
•VeblinGoods
•OstentatiousGoods/
•Snobaffect
•Conspicuousconsumption
•FerrariCars
•RolexWatches
•VanGoghPainting!
•Diamonds
•Ifthepricewaslowpeoplewouldbuyless?
•Arethesegoodsmuchdifferentfromothergoods?
•GiffenGoods
•TheoreticalModel,basedonIrishPotatofamine
•Duringthefaminethepeoplesstaple(main)dietwaspotatoes!
Theycouldaffordalittlemeatbutmainlyatepotatoes.Asthefaminehit,thepriceofpotatoeswentup,therewerenosubstitutes!
Theystoppedbuyinganymeatandboughtmorepotatoes,despitethepricebeinghigherthanbefore!
Goods
•SubstituteGoods:
Productsthatgivepossiblealternativesforconsumers
•Complementarygoods:
Twogoodsforwhichthequantitydemandedofoneisnegativelyrelatedtothepriceoftheother
•Normalgood:
Agoodwherethequantitydemandedincreasesasincomeincreases
•Inferiorgood:
Agoodwhosedemandfallsasincomeincreases
DerivedDemand
•Demandaproductusedtomakeanotherproduct
•i.e.Demandforlabour
•Wherethedemandforonegoodisdependentonthedemandforanotherrelatedgood
•Constructionindustry–demandfornewofficeconstruction–demandforofficespace
•Demandforconstructionworkers–demandforconstructionwork
•Factormarkets–deriveddemand
•Thinkofsomederiveddemandforthefollowing
•Wheat–fertilizer,water…
•Cars–acetylene,paint,tyres…
JointDemand(compliments)
•Thedemandforonewilldirectlyaffectthedemandfortheother
∙I.e.Shoesandshoelaces,CD’sandCDplayers
CompositeDemand
•Appliestoproductswhichareusedformorethanonepurpose
∙I.e.Maizecanbeafoodorbio-fuel.Increasedharvestingforbio-fuelwillleadtoapriceincreaseforfoodstuff
•Wheregoodshavemorethanoneuse–anincreaseinthedemandforoneleadstoafallinsupplyoftheother
•Milk–usedforcheese,yoghurts,cream,butter,gasoline,oil,plastic,nylonetc.
•Land,ifyouusemorelandforfarmingthereislesslandforfactoriesetc.
•Ifmoremilkisusedforcheese,ceterisparibusthereislessavailableforbutter
•CowsareREALLYuseful.
•Youcanusethemformilk,leather,art,ridingorBEEF.
•Youcan’tdothisallatonce
•DONOTTRYTOMILKAMOVINGCOW
•Byusingcowsforonepurpose,wegiveuptheotherusesithas(opportunitycost).
•Therefore,ifweuseacowforart,wecannotuseitforleather,sowhentheDEMANDforCowArtincreases,theSUPPLYofleatherdecreases.
Supply
•Supplyindicateshowmuchofagoodproducersarewillingandabletoofferforsaleperperiodateachpossibleprice,otherthingsconstant
•Lawofsupplystatesthatthequantitysuppliedisusuallydirectlyrelatedtoitsprice,otherthingsconstant
▪Thelowertheprice,thesmallerthequantitysupplied
▪Thehighertheprice,thegreaterthequantitysupplied
SupplySchedule&
SupplyCurve
–Thesupplyscheduleisatablethatshowinghowmuchofaproductfirmswillsetatdifferentprices.
–Thesupplycurveisagraphillustratinghowmuchofaproductafirmwillsetatdifferentprices.
•Upwardslopping&
totherightduetothelawofsupply.
IndividualSupply&
MarketSupply
–Theindividualsupplyistherelationshipbetweenpriceofgoodandthequantityanindividualproduceriswillingandabletosellperperiod,otherthingsconstant.
–Themarketsupplyisthesumofallthatissuppliedeachperiodbyallproducersofasingleproduct.
MarketSupplyCurve
ChangesinQuantitySupplied&
ChangesinSupplied
–Achangesinquantitysuppliedresultinthemovementalongthesupplycurvedueachangeinpricewhileotherfactorsremainconstant.
–Changeinsupplyisshiftofsupplycurveresultingfromachangeinoneofthedeterminantsofsupplyotherthanpriceofthegoods.
ChangeinQuantitySupplied
ChangedinSupply
Ashiftofthesupplycurve,eithertotheleftorright.
Determinantsofsupplyotherthanthepriceofthegood
▪Costofproduction
▪Technology
▪Pricesofrelatedgoods
▪Expectation
▪Numberofsellers
ShiftsinTheSupplyCurve
TheCostofProduction
–Responsetothefactorofproduction(labor,land,capita,energy,andsoon).
–Supplyofagoodsarenegativelyrelatedtothepriceoftheinputsusedtomakethegood.
–Objectiveistomaximizeprofit.
–Example:
toproduceice-cream,sellersusevariousinputssuchascream,sugar,flavoring,ice-creammachines.Whenpriceofoneormoreoftheseinputsrises,producingice-creamislessprofitable&
firmsupplylessice-cream.
Technology
–Representstheeconomy’sknowledgeabouthowtocombineresourcesefficiently.
–Ifabettertechnologyisdiscovered,productioncostswillfall.Thus,supplierswillbemorewilling&
abletosupplythegoodateachprice.
whennewtechnologyareintroducedintheproductionofsushi,supplyofsushiwillincreaseandshiftthesupplycurve.
PriceofRelatedGoods
–SubstitutesGoods
•Ifthereisanincreaseinthepriceofsubstitutegoodsinproduction,supplyofagoodwilldecrease.
•Example:
PepsiandCoke
(Ppepsi↑QSSpepsi↑SScoke↓)
–