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Sumber : Mankiw / G Mankiw / Krugman
The Market Forces of Supply and Demand
Saparuddin M
081318811577
Saparuddin M www.edunomic.net [email protected] 0813 1881 1577
How to Market Work
WHAT YOU WILL LEARN IN THIS CHAPTER
What a competitive market is and how it is described by the supply and demand model
What the demand curve and supply curve are movements along a curve and shifts of a curve How the supply and demand curves determine a
market’s equilibrium price and equilibrium quantity
Supply and Demand A competitive market:
Many buyers and sellers Same good or service
The supply and demand model is a model of how a competitive market works.
Five key elements: Demand curve Supply curve Demand and supply curve shifts Market equilibrium Changes in the market equilibrium
Demand Schedule
A demand schedule shows how much of a good or service consumers will want to buy at different prices.
Why does the Demand Curve Slope Downward?
Law of Demand Inverse relationship between price and quantity.
Law of Diminishing Marginal Utility. Utility is the extra satisfaction that one receives from
consuming a product. Marginal means extra. Diminishing means decreasing.
Demand Curve
A demand curve is the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price.
70 9 11 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
Price of coffee bean (per gallon)
Quantity of coffee beans (billions of
pounds)
Demand curve, D
As price rises, the quantity demanded falls
7.1
7.5
8.1
8.9
10.0
11.5
14.2
Price of coffee beans
(per pound)
Quantity of coffee beans demanded
(billions of pounds)
1.75
1.50
1.25
1.00
0.75
0.50
$2.00
Demand Schedule for Coffee Beans
Demand Curve
A demand curve is the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price.
70 9 11 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
Price of coffee bean (per gallon)
Quantity of coffee beans (billions of
pounds)
Demand curve, D
As price rises, the quantity demanded falls
7.1
7.5
8.1
8.9
10.0
11.5
14.2
Price of coffee beans
(per pound)
Quantity of coffee beans demanded
(billions of pounds)
1.75
1.50
1.25
1.00
0.75
0.50
$2.00
Demand Schedule for Coffee Beans
What ifDemand
Increases?
An Increase in Demand
A shift of the demand curve is a change in the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve.
Increase in Increase in populationpopulation
more coffee more coffee drinkersdrinkers
Price of coffee
beans (per gallon)
70 9 11 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50 D1 D2
Demand curve in 2006
Demand curve in 2002
Quantity of coffee beans (billions of
pounds)
7.17.58.18.9
10.011.514.2
8.59.09.7
10.712.013.817.0
in 2002 in 2006$2.001.751.501.251.000.750.50
Price of coffee beans (per pound)
Quantity of coffee beans demanded
(billions of pounds)
Demand Schedules for Coffee Beans
Demand Curve
A demand curve is the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price.
70 9 11 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
Price of coffee bean (per gallon)
Quantity of coffee beans (billions of
pounds)
Demand curve, D
As price rises, the quantity demanded falls
7.1
7.5
8.1
8.9
10.0
11.5
14.2
Price of coffee beans
(per pound)
Quantity of coffee beans demanded
(billions of pounds)
1.75
1.50
1.25
1.00
0.75
0.50
$2.00
Demand Schedule for Coffee Beans
What ifDemand
Decreases?
Movement Along the Demand Curve
7 8.1 9.70 10 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50 D1 D2
A C
B
A shift of the demand curve…
… is not the same thing as a movement along the demand curve
Price of coffee beans (per
gallon)
Quantity of coffee beans (billions of
pounds)
A movement along the demand curve is a change in the quantity demanded of a good that is the result of a change in that good’s price.
Saparuddin M www.edunomic.net [email protected] 0813 1881 1577
Saparuddin M www.edunomic.net [email protected] 0813 1881 1577
Market Demand Curve
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
What Causes a Demand Curve to Shift? Changes in the Prices of Related Goods
Substitutes: Two goods are substitutes if a fall in the price of one of the goods makes consumers less willing to buy the other good.
Complements: Two goods are complements if a fall in the price of one good makes people more willing to buy the other good.
What Causes a Demand Curve to Shift? Changes in Income
Normal Goods: When a rise in income increases the demand for a good - the normal case - we say that the good is a normal good.
Inferior Goods: When a rise in income decreases the demand for a good, it is an inferior good.
Changes in Tastes Changes in Expectations
Individual Demand Curve and the Market Demand Curve
The market demand curve is the horizontal sum of the individual demand curves of all consumers in that market.
DDarla DDino
0 0 10 203020 0
$2
1
$2
1
$2
1
30 40 50
DMarket
(a) Darla’s Individual Demand Curve
(b) Dino’s Individual Demand Curve
(c) Market Demand Curve
Price of coffee
beans (per pound)
Price of coffee
beans (per pound)
Price of coffee
beans (per pound)
Quantity of coffee beans (pounds)
Quantity of coffee beans (pounds)
Quantity of coffee beans (pounds)
LAW OF SUPPLY As Price Rises… …Quantity Supplied Rises As Price Falls… …Quantity Supplied Falls
DETERMINANTS OF SUPPLY
Resource Prices Technology Taxes & Subsidies Prices of Other Goods Price Expectations Number of Sellers
5
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY
35
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
Connect the Points
GRAPHING SUPPLY
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
What ifSupply
Increases?
GRAPHING SUPPLY
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
Price of Corn
Quantity of Corn
$54321
60503520 5
P QSCORN
8070604530
S’Increasein
Supply
Increasein QuantitySupplied
GRAPHING SUPPLY
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
What ifSupply
Decreases?
GRAPHING SUPPLY
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
S’
453020 0 --
Decreasein
Supply
Decreasein QuantitySupplied
GRAPHING SUPPLY
Saparuddin M www.edunomic.net [email protected] 0813 1881 1577
Saparuddin M www.edunomic.net [email protected] 0813 1881 1577
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Combiningwith
Demand
GRAPHING SUPPLY
MARKET DEMAND & SUPPLY
$54321
1020355580
$54321
60503520 5
x200BUYERS
P QD
BUSHELSOF CORN MARKE
TDEMAND2,0004,0007,000
11,00016,000
x200SELLERS
12,00010,000
7,0004,0001,000
P QS
BUSHELSOF CORN MARKE
TSUPPLY
EQUILIBRIUMGraphically…
7
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD$5
4321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000D
P QS
Price of Corn
Quantity of Corn
CORNMARKET
CORNMARKET
Market Clearing Equilibrium
MARKET DEMAND & SUPPLY
7
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD$5
4321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000D
P QS
Price of Corn
Quantity of Corn
CORNMARKET
CORNMARKETSurplus
At a $4 pricemore is beingsupplied than
demanded
MARKET DEMAND & SUPPLY
117
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD$5
4321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000D
P QS
Price of Corn
Quantity of Corn
CORNMARKET
CORNMARKET
At a $2 pricemore is being
demanded thansupplied
Shortage
MARKET DEMAND & SUPPLY
Market Disequilibria
Excess demand, or shortage, is the condition that exists when quantity demanded exceeds quantity supplied at the current price.
• When quantity demanded When quantity demanded exceeds quantity supplied, exceeds quantity supplied, price tends to rise until price tends to rise until equilibrium is restored.equilibrium is restored.
Market Disequilibria
Excess supply, or surplus, is the condition that exists when quantity supplied exceeds quantity demanded at the current price.
• When quantity supplied When quantity supplied exceeds quantity demanded, exceeds quantity demanded, price tends to fall until price tends to fall until equilibrium is restored.equilibrium is restored.
Increases in Demand and Supply
Higher demand leads to higher equilibrium price and higher equilibrium quantity.
Higher supply leads to lower equilibrium price and higher equilibrium quantity.
Decreases in Demand and Supply
Lower demand leads to lower price and lower quantity exchanged.
Lower supply leads to higher price and lower quantity exchanged.
Relative Magnitudes of Change
• The relative magnitudes of change in supply and demand The relative magnitudes of change in supply and demand determine the outcome of market equilibrium.determine the outcome of market equilibrium.
Relative Magnitudes of Change
• When supply and demand both increase, quantity will When supply and demand both increase, quantity will increase, but price may go up or down.increase, but price may go up or down.
(contoh kasus)
Permintaan suatu barang ditunjukkan dengan persamaan Q = 60 – 10P; dan penawaran barang ditunjukkan dengan persamaan Q = 5P + 15. dimana Q adalah jumlah barang dan P adalah harga. Buatlah : (a)skedul keseimbangan (ekuilibrium) dan (b)gambarkan kurva keseimbangan permintaan dan penawaran barang tersebut
Jawab:(a) Skedul;
Harga (P) 2 3 4
Jml Diminta 40 30 20
Jml Ditawarkan 25 30 35
P
Q0
D ; Q = 60 -10P
3
30
S ; Q = 5P + 15
(b) Keseimbangan secara matematis;Qs = Qd
5P + 15 = 60 – 10P 15P = 45Maka P = 3 dan Q = 30
Mekanisme Pasar
Di ketahui : Qd = 40 – 5P; Qs = 7P + 10. Buatlah (a) hitunglah keseimbangan Q dan P lalu gambarkan kurva permintaan dan penawaran, (b) gambarkan kurva keseimbangan permintaan dan penawaran barang tersebut
DEMAND ANALYSIS
- Demand (Permintaan) adalah kuantitas barang atau jasa yg. rela atau mampu dibeli oleh konsumen selama periode waktu tertentu berdasarkan kondisi-kondisi tertentu.
- Model matematis konsep permintaan barang atau jasa : QDX = F (PX, I, PR, PE, IE, PAE, T, N, A, F, O) Dimana : QDX = kuantitas permintaan barang atau jasa F = fungsi, berarti fungsi dari atau tergantung pada PX = harga dari barang atau jasa X I = pendapatan konsumen PR = harga dari barang lain yang bersangkutan PE = ekspektasi konsumen terhadap harga dari barang/jasa X di masa mendatang IE = ekspektasi konsumen terhadap tingkat pendapatan di masa mendatang PAE = ekspektasi konsumen thdp. ketersediaan barang / jasa X di masa mendatang T = selera konsumen N = banyaknya konsumen potensial A = pengeluaran iklan F = features atau atribut dari barang / jasa tersebut O = faktor-faktor spesifik lain dari permintaan barang / jasa tersebut
CONTOH SOAL DEMAND ANALYSISPermintaan TV berwarna (20 inchi) ditemukan fungsi permintaan secara umumsebagai berikut : QDX = -1,4 – 15 PX + 7,5 PR + 2,6 I + 2,5 A QDX = kuantitas permintaan TV berwarna (ribuan unit) PX = harga dari TV berwarna (ratusan ribu rupiah) PR = harga TV dari merk lain (ratusan ribu rupiah) I = pendapatan konsumen (jutaan rupiah per tahun) A = pengeluaran iklan produk TV tersebut (ratusan juta rupiah per tahun)Contoh : Tahun 2013, harga rata-rata TV berwarna 20 inchi Samsung di DKI Rp. 1,1 juta; harga TV berwarna merk lain Rp. 0,9 juta; rata-rata pendapatan
konsumen Rp. 10 juta per tahun dan total pengeluaran iklan untuk TV berwarna Samsung 20 inchi Rp. 5 milyar.
- Tentukan fungsi permintaan TV berwarna Samsung 20 inchi ! - Hitunglah besar kuantitas permintaan TV berwarna Samsung 20 inchi ! - Gambarkan fungsi Demand tersebut !
SUPPLY ANALYSIS- Supply (penawaran) adalah kuantitas produk yang ditawarkan atau dijual di
pasar yang secara umum sangat tergantung pada sejumlah variabel.
- Model matematis konsep penawaran produk : QSX = F (PX, PI, PR, T, PE, NF, O) Dimana : QSX = kuantitas penawaran produk X F = fungsi, berarti fungsi dari atau tergantung pada PX = harga dari produk X PI = harga input yang digunakan untuk memproduksi produk X PR = harga dari produk lain (pengganti) T = tingkat teknologi yang tersedia PE = ekspektasi produsen terhadap harga produk X di masa mendatang NF = banyaknya perusahaan yang memproduksi produk yang sama O = faktor-faktor spesifik lain dari penawaran produk tersebut
JAWABAN SOAL DEMAND ANALYSIS
1. Fungsi Permintaan QDX = - 1,4 – 15 PX + 7,5 PR + 2,6 I + 2,5 A = - 1,4 – 15 PX + 7,5 (9) + 2,6 (10) + 2,5 (50) = 217,1 – 15 PX
2. Kuantitas Permintaan QDX = 217,1 – 15 (11) = 217,1 – 165 = 51,93. - Titik potong sumbu QDX, syarat PX = 0 QDX = 217,1 – 0 = 217,1 (217,1 ; 0) - Titik potong sumbu PX, syarat QDX = 0 0 = 217,1 – 15 PX
15 PX = 217,1 PX = 14,47 (0 ; 14,47)
KURVA PERMINTAAN
PX
(0 , 14,47) QDX = 217,1 – 15 PX
0 (217,1 ; 0) QX
JAWABAN SOAL SUPPLY ANALYSIS
1. Fungsi Penawaran QSX = 325 + 7 PX - 0,25 PI - 8 PR + 5 NF = 325 + 7 PX - 0,25 (500) - 8 (25)+ 5 (20) = 100 + 7 PX
2. Kuantitas Penawaran QSX = 100 + 7 (75) = 100 + 525 = 625 625.000 m2
3. - Titik potong sumbu QSX, syarat PX = 0 QSX = 100 + 0 = 100 (100 , 0) - Titik potong sumbu PX, syarat QSX = 0 0 = 100 + 7 PX
7 PX = - 100 PX = - 14,28 (0 ; -14,28)
KURVA PENAWARAN
PX
QSX = 100 + 7 PX
0 QX
(100 , 0)
(0 ; -14,28)
CONTOH SOAL SUPPLY ANALYSIS
Fungsi penawaran ruang pusat perbelanjaan (mall) di Surabaya tahun 1996 adalah sebagai berikut : QSX = 325 + 7 PX – 0,25 PI – 8 PR + 5 NF
QSX = kuantitas penawaran sewa ruang mall (000 m²) PX = harga sewa mall (US $ / m² / bln.) PI = harga input pembangunan mall (US $ / m²) PR = harga sewa ruang perkantoran (US $ / m²) NF = banyaknya pengembang yang menawarkan sewa ruang mall (unit perusahaan)Contoh : Apabila rata-rata harga sewa mall US $ 75 / m² / bln. Dan rata-rata biaya
pembangunan (harga input) ruangan mall US $ 500 / m², rata-rata harga sewa ruang perkantoran US $ 25 / m² / bln., jumlah pengembang yang menawarkan sewa ruang mall 20 perusahaan.
- Tentukan fungsi penawaran ! - Hitunglah besar kuantitas penawaran sewa ruang mall (000 m²) ! - Gambarkan fungsi Supply tersebut !
Simultaneous Shifts of Supply and Demand
Two opposing forces determining the equilibrium quantity.
The increase in demand dominates the decrease in supply.
Quantity of coffeeQ2Q 1
P 2
P 1
S2
D 2D 1
S1
E1
E2
(a) One possible outcome: Price Rises, Quantity Rises
Price of coffee Small decrease in supply
Large increase in demand
Simultaneous Shifts of Supply and Demand
Two opposing forces determining the equilibrium quantity.
Q1
Q2
P2
P1
S2
D 2D 1
S1
E1
E2
(b) Another Possibility Outcome: Price Rises, Quantity FallsPrice of coffee
Quantity of coffee
Large decrease in supply
Small increase in demand
Simultaneous Shifts of Supply and DemandWe can make the following predictions about the outcome when the supply and demand curves shift simultaneously:
Simultaneous Shifts of Supply and Demand
Supply Increases Supply Decreases
Demand Increases
Price: ambiguousQuantity: up
Price: upQuantity: ambiguous
Demand Decreases
Price: downQuantity: ambiguous
Price: ambiguousQuantity: down
A recent drought in Australia reduced the amount of grass on which Australian dairy cows could feed, thus limiting the amount of milk these cows produced for export.
At the same time, a new tax levied by the government of Argentina raised the price of the milk the country exported, thereby decreasing Argentine milk sales worldwide.
These two developments produced a supply shortage in the world market, which dairy farmers in Europe couldn’t fill because of strict production quotas set by the European Union.
Demand and Supply Shifts at Work in the Global Economy
In China, meanwhile, demand for milk and milk products increased, as rising income levels drove higher per-capita consumption.
All these occurrences resulted in a strong upward pressure on the price of milk everywhere in 2007.
Demand and Supply Shifts at Work in the Global Economy
SUMMARY
1. The supply and demand model illustrates how a competitive market works.
2. The demand schedule shows the quantity demanded at each price and is represented graphically by a demand curve. The law of demand says that demand curves slope downward.
3. A movement along the demand curve occurs when a price change leads to a change in the quantity demanded. When economists talk of increasing or decreasing demand, they mean shifts of the demand curve—a change in the quantity demanded at any given price.
SUMMARY
4. There are five main factors that shift the demand curve:• A change in the prices of related goods or services• A change in income• A change in tastes• A change in expectations• A change in the number of consumers
5. The market demand curve for a good or service is the horizontal sum of the individual demand curves of all consumers in the market.
6. The supply schedule shows the quantity supplied at each price and is represented graphically by a supply curve. Supply curves usually slope upward.
SUMMARY
7. A movement along the supply curve occurs when a price change leads to a change in the quantity supplied. When economists talk of increasing or decreasing supply, they mean shifts of the supply curve—a change in the quantity supplied at any given price.
8. There are five main factors that shift the supply curve:• A change in input prices• A change in the prices of related goods and services• A change in technology• A change in expectations• A change in the number of producers
9. The market supply curve for a good or service is the horizontal sum of the individual supply curves of all producers in the market.
SUMMARY
10. The supply and demand model is based on the principle that the price in a market moves to its equilibrium price, or market-clearing price, the price at which the quantity demanded is equal to the quantity supplied. This quantity is the equilibrium quantity. When the price is above its market-clearing level, there is a surplus that pushes the price down. When the price is below its market-clearing level, there is a shortage that pushes the price up.
11. An increase in demand increases both the equilibrium price and the equilibrium quantity; a decrease in demand has the opposite effect. An increase in supply reduces the equilibrium price and increases the equilibrium quantity; a decrease in supply has the opposite effect.
12. Shifts of the demand curve and the supply curve can happen simultaneously.
SUMMARY Supply Schedule• A supply schedule
shows how much of a good or service would be supplied at different prices.
Supply Schedule for Coffee Beans
Price of coffee beans(per pound)
Quantity ofcoffee beans
supplied(billions of pounds)
$2.00 11.6
1.75 11.5
1.50 11.2
1.25 10.7
1.00 10.0
0.75 9.1
0.50 8.0
SUMMARY Supply Curve
Quantity of coffee beans (billions of pounds)
Price of coffee beans (per pound)
70 9 11 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
As price rises, the quantity supplied
rises.
A supply curve shows graphically how much of a good or service people are willing to sell at any given price.
Supply curve, S
Supply Schedule for Coffee Beans
Price of coffee beans(per pound)
Quantity ofcoffee beans
supplied(billions of pounds)
$2.00 11.6
1.75 11.5
1.50 11.2
1.25 10.7
1.00 10.0
0.75 9.1
0.50 8.0
SUMMARY An Increase in Supply
Supply Schedule for Coffee Beans
Price of coffee beans (per pound)
Quantity of beans supplied (billions of pounds)
In 2002 In 2006$2.00 11.6 13.91.75 11.5 13.81.50 11.2 13.41.25 10.7 12.81.00 10.0 12.00.75 9.1 10.90.50 8.0 9.6
SUMMARY An Increase in Supply
A shift of the supply curve is a change in the quantity supplied of a good at any given price.
70 9 11 13 15 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
S1 S2
Price of coffee beans (per
pound)
Quantity of coffee beans (billions of pounds)
… is not the same thing as a shift of the supply curve
A movement along the supply curve…
Supply Schedule for Coffee Beans
Price of coffee beans
(per pound)
Quantity of beans supplied
(billions of pounds)
In 2002 In 2006
$2.00 11.6 13.9
1.75 11.5 13.8
1.50 11.2 13.4
1.25 10.7 12.8
1.00 10.0 12.0
0.75 9.1 10.9
0.50 8.0 9.6
SUMMARYMovement Along the Supply Curve
A movement along the supply curve is a change in the quantity supplied of a good that is the result of a change in that good’s price.
70 10 11.2 12 15 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
S1 S2
A C
B
Price of coffee beans (per
pound)
Quantity of coffee beans (billions of pounds)
… is not the same thing as a shift of the supply curve
A movement along the supply curve…
SUMMARY
Any “increase in supply” means a rightward shift of the supply curve: at any given price, there is an increase in the quantity supplied. (S1 S2)
Shifts of the Supply Curve
S3 S1 S2
Price
Quantity
Decrease in supply
Increase in supply
Any “decrease in supply” means a leftward shift of the supply curve: at any given price, there is a decrease in the quantity supplied. (S1 S3)
SUMMARY
• Changes in input prices– An input is a good that is used to produce
another good. • Changes in the prices of related goods and
services• Changes in technology• Changes in expectations• Changes in the number of producers
What Causes a Supply Curve to Shift?
SUMMARYIndividual Supply Curve and the Market Supply CurveThe market supply curve is the horizontal sum of the individual
supply curves of all firms in that market.
SFigueroa SBien Pho
1 2 31 22 31 4 500 0
$2
1
$2
1
$2
1
SMarket
(a) Mr. Figueroa’s Individual Supply Curve
(b) Mr. Bien Pho’s Individual Supply Curve
(c) Market Supply Curve
Price of coffee
beans (per pound)
Price of coffee
beans (per pound)
Price of coffee
beans (per pound)
Quantity of coffee beans (pounds)
Quantity of coffee beans (pounds)
Quantity of coffee beans (pounds)
SUMMARYSupply, Demand and Equilibrium
• Equilibrium in a competitive market: when the quantity demanded of a good equals the quantity supplied of that good.
SUMMARY
Market equilibrium occurs at point E, where the supply curve and the demand curve intersect.
Price of coffee beans (per pound)
Quantity of coffee beans (billions of pounds)
70 10 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
Supply
Demand
E EquilibriumEquilibrium price
Equilibrium quantity
Market Equilibrium
SUMMARY
There is a surplus of a good when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level.
70 10 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
Supply
Demand
8.1 11.2
E
Surplus
Quantity demanded
Quantity supplied
Price of coffee beans (per pound)
Quantity of coffee beans (billions of pounds)
Surplus
SUMMARY
70 10 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
Supply
Demand
9.1 11.5
E
Shortage
Quantity demanded
Quantity supplied
Price of coffee beans (per pound)
Quantity of coffee beans (billions of pounds)
There is a shortage of a good when the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level.
Shortage
SUMMARYEquilibrium and Shifts of the Demand Curve
Q2Q 1
P2
P1
D 2
Supply
D 1
E2
E1
Price of coffee beans
Quantity of coffee beans
Price rises
Quantity rises
An increase in demand…
… leads to a movement along the supply curve due to a higher equilibrium price and higher equilibrium quantity
SUMMARYEquilibrium and Shifts of the Supply Curve
P2
P1
Q1
Q2
Demand
E1
S1S2
E2
Price of coffee beans
Quantity of coffee beans
Price rises
Quantity falls
A decrease in supply…
… leads to a movement along the demand curve due to a higher equilibrium price and lower equilibrium quantity
SUMMARYTechnology Shifts of the Supply CurvePrice
Quantity
S1
Demand
E1
E2
An increase in supply …
P2
P1
Q1
Q2
… leads to a movement along the demand curve to a lower equilibrium price and higher equilibrium quantity.
Price falls
Quantity increases
S2
Technological innovation: In the early 1970s, engineers learned how to put microscopic electronic components onto a silicon chip; progress in the technique has allowed ever more components to be put on each chip.