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1、,Chapter 2,The Basics of Supply and Demand,Topics to Be Discussed,1. Supply and Demand 2. The Market Mechanism 3. Changes in Market Equilibrium 4. Elasticities of Supply and Demand 5. Short-Run Versus Long-Run Elasticities,2,Chapter 1,Topics to Be Discussed,6. Understanding and Predicting theEffects
2、 of Changing Market Conditions 7. Effects of Government Intervention-Price Controls,3,Chapter 1,Supply,The Supply Curve The supply curve shows how much of a good producers are willing to sell at a given price, holding constant other factors that might affect quantity supplied,4,Chapter 1,Supply,The
3、Supply Curve This price-quantity relationship can be shown by the equation:,5,Chapter 1,Chapter 1,Slide 6,Supply,S,Firms will increase output at higher prices,The Supply Curve Graphically,Quantity,Price ($ per unit),The supply curve slopes upward,Supply,Other Variables that Affect Supply Technique (
4、T) Number of enterprises (N) Price of Raw Materials (Pr) Price of Related Goods Substitutes (Ps) Complements (Pc) Expected price (Pe) Cost of Production,7,Chapter 1,Supply,Substitutes goods: Two goods for which an increase in the price of one leads to an increase in the quantity demanded of the othe
5、r. Complements goods: Two goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other.,8,Chapter 1,Supply,Pr decrease Ps increase Pc decrease T increase Pe decrease N increase Cp decrease,P,Change in Supply,Q,9,Chapter 1,Supply,Supply - A Review Supply i
6、s determined by non-price supply-determining variables as such as the cost of labor, capital, and raw materials. Changes in supply are shown by shifting the entire supply curve as change in non-price supply-determining variables .,10,Chapter 1,Supply,Supply - A Review Changes in quantity supplied ar
7、e shown by movements along the supply curve and are caused by a change in the price of the product.,11,Chapter 1,Demand,The Demand Curve The demand curve shows the relationship between the quantity of a good that the consumers are willing to buy and price of the good This price-quantity can be shown
8、 by the equation:,12,Chapter 1,Chapter 1,Slide 13,Demand,D,consumers are willing to buy more at a lower price as the product becomes relatively cheaper and the consumers real income increases.,Quantity,Price ($ per unit),P1,P2,Q1,Q2,The Demand Curve Graphically,The demand curve slopes downward,Deman
9、d,Determining Variables of Demand Curve Income (M) Consumer preference (J) Price of Related Goods Substitutes (Ps) Complements (Pc) Expected price (Pe) Number of consumers (N),14,Chapter 1,P,Q,Change in Demand,Demand,M increase J increase Ps increase Pc decrease Pe increase N increase,15,Chapter 1,D
10、emand,Demand - A Review Demand is determined by non-price demand-determining variables, such as, income, price of related goods, and tastes. Changes in demand are shown by shifting the entire demand curve as change in non-price demand-determining variables.,16,Chapter 1,Demand,Demand - A Review Chan
11、ges in quantity demanded are shown by movements along the demand curve as the price of the good changes.,17,Chapter 1,The Market Mechanism,The Market Equilibrium: The quantity supplied equals to the quantity demanded The Market Mechanism: The tendency in a free market for the price to change until t
12、he market clears,18,Chapter 1,Chapter 1,Slide 19,The Market Mechanism,Quantity,Price ($ per unit),The Market Mechanism,Characteristics of the equilibrium or market clearing price: QD = QS No shortage No excess supply No pressure on the price to change,20,Chapter 1,Chapter 1,Slide 21,The Market Mecha
13、nism,Quantity,Price ($ per unit),Qd,Qs,The Market Mechanism,The market price is above equilibrium There is excess supply Producers lower prices Quantity demanded increases and quantity supplied decreases The market continues to adjust(调节) until the equilibrium price is reached.,A Surplus,22,Chapter
14、1,Chapter 1,Slide 23,The Market Mechanism,The Market Mechanism,The market price is below equilibrium: There is a shortage Producers raise prices Quantity demanded decreases and quantity supplied increases The market continues to adjust until the new equilibrium price is reached.,Shortage,24,Chapter
15、1,Chapter 1,Slide 25,The Market Mechanism,The Market Mechanism,Market Mechanism Summary 1) Supply and demand interact to determine the market-clearing price. 2) When not in equilibrium, the market will adjust to alleviate(减轻) a shortage or surplus and return the market to equilibrium. 3) Markets mus
16、t be competitive for the mechanism to be efficient.,26,Chapter 1,Changes In Market Equilibrium, Equilibrium prices are determined by the relative level of supply and demand. Supply and demand are determined by particular values of supply and demand determining variables. Changes in any one or combination of these variables can cause a change in the equilibrium price and/or quantity.,27,Chapter 1,Eg: R