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Supply And Demand

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Supply

And

Demand

Pertemuan - 3

Moh. SigitTaruna 2009-Pengantar Ekonomi I

- 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
- This price-quantity relationship can be shown by the equation:

- The Demand Curve
- The demand curve shows how much of a good consumers are willing to buy as the price per unit changes holding non-price factors constant.
- This price-quantity relationship can be shown by the equation:

S

The curves intersect at

equilibrium, or market-

clearing, price. At P0the

quantity supplied is equal

to the quantity demanded

at Q0 .

P0

D

Q0

Price

($ per unit)

Quantity

A Surplus

- 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 until the equilibrium price is reached.

Price

($ per unit)

S

Surplus

P1

Assume the price is P1 , then:

1) Qs : Q2 > Qd : Q1

2) Excess supply is Q1:Q2.

3) Producers lower price.

4) Quantity supplied decreases and quantity demanded increases.

5) Equilibrium at P2Q3

P2

D

Quantity

Q1

Q3

Q2

Shortage

- 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.

Price

($ per unit)

S

Assume the price is P2 , then:

1) Qd : Q2 > Qs : Q1

2) Shortage is Q1:Q2.

3) Producers raise price.

4) Quantity supplied increases and quantity demanded decreases.

5) Equilibrium at P3, Q3

P3

P2

Shortage

D

Quantity

Q1

Q3

Q2

- Non-price Determining Variables of Supply
- Costs of Production
- Labor
- Capital
- Raw Materials

- Costs of Production

S

S’

P1

P2

Q0

Q1

Q2

Change in Supply

- The cost of raw materials falls
- At P1, produce Q2
- At P2, produce Q1
- Supply curve shifts right to S’
- More produced at any price on S’ than on S

P

Q

- Jika biaya turun, harga (P) dan jumlah (Q) tidak selalu konstan
- Akan terjadi perubahan, jika supply curve yang baru mencapai ekuilibrium dengan demand curve
- Supply curve akan menggeser, maka harga pasar akan jatuh dan jumlah produksi naik
- Maka biaya yang rendah menghasilkan harga yang lebih rendah dan penjualan meningkat.

D

S

S’

P1

P3

Q1

Q3

Q2

- Raw material prices fall
- S shifts to S’
- Surplus @ P1 of Q1, Q2
- Equilibrium @ P3, Q3

P

Q

- Non-price Determining Variables of Demand
- Income
- Consumer Tastes
- Price of Related Goods
- Substitutes
- Complements

D

D’

P2

P1

Q0

Q1

Q2

Change in Demand

- Income Increases
- At P1, produce Q2
- At P2, produce Q1
- Demand Curve shifts right
- More purchased at any price on D’ than on D

P

Q

D

D’

S

P3

P1

Q2

Q1

Q3

- Income Increases
- Demand shifts to D1
- Shortage @ P1of Q1, Q2
- Equilibrium @ P3, Q3

P

Q

D

D’

S

S’

P2

P1

Q1

Q2

- Income Increases & raw material prices fall
- The increase in D is greater than the increase in S
- Equilibrium price and quantity increase to P2, Q2

P

Q

- Elasticity is a general concept that can be used to quantify the response in one variable when another variable changes.
- Seberapa besar perubahan jumlah yang diminta sebagai akibat dari perubahan harga

Pertemuan - 6

Moh. SigitTaruna 2009

- Elastis : bila jumlah yang diminta sangat peka terhadap perubahan harga
- Inelastis : bila jumlah yang diminta kurang peka terhadap perubahan harga
- Price elastic demand : perubahan harga sebesar 1% menyebabkan perubahan jumlah yang diminta lebih dari 1%
- Price inelastic demand :perubahan harga sebesar 1% menyebabkan perubahan jumlah yang diminta kurang dari 1%

- A popular measure of elasticity is price elasticity of demand measures how responsive consumers are to changes in the price of a product.

- The value of demand elasticity is always negative, but it is stated in absolute terms.

Other Demand Elasticities

- Income elasticity of demand measures the percentage change in quantity demanded resulting from a one percent change in income.

PX

Elastis

Elastis Uniter

Inelastis

QX

MRX

When demand does not respond at all to a change in price, demand is perfectly inelastic.

Demand is perfectly elastic when quantity demanded drops to zero at the slightest increase in price.

Elasticities of Supply

- Price elasticity of supply measures the percentage change in quantity supplied resulting from a 1 percent change in price.
- The elasticity is usually positive because price and quantity supplied are directly related.

Elasticities of Supply

- We can refer to elasticity of supply with respect to interest rates, wage rates, and the cost of raw materials.

The Market for Wheat

- 1981 Supply Curve for Wheat
- QS = 1,800 + 240P

- 1981 Demand Curve for Wheat
- QD = 3,550 - 266P

The Market for Wheat

- Equilibrium: Q S = Q D

Chapter 2: The Basics of Supply and Demand

Slide 26

The Market for Wheat

Chapter 2: The Basics of Supply and Demand

Slide 27

The Market for Wheat

- Assume the price of wheat is $4.00/bushel

The Market for Wheat

19811,800 + 240P3,550 - 266P1,800+240P = 3,550-266P506P = 1750P1981 = $3.46/bushel

19981,944 + 207P3,244 - 283P 1,944+207P = 3,244-283P P1998= $2.65/bushel

Supply (Qs)Demand (QD)Equilibrium Price (Qs = QD)

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Demand

- Price elasticity of demand varies with the amount of time consumers have to respond to a price.

Demand

- Most goods and services:
- Short-run elasticity is less than long-run elasticity. (e.g. gasoline, Drs.)

- Other Goods (durables):
- Short-run elasticity is greater than long-run elasticity (e.g. automobiles)

DSR

Price

People tend to

drive smaller and

more fuel efficient

cars in the long-run

DLR

Quantity

Gasoline

DLR

Price

People may put

off immediate

consumption, but

eventually older cars

must be replaced.

DSR

Quantity

Automobiles

Supply

- Most goods and services:
- Long-run price elasticity of supply is greater than short-run price elasticity of supply.

- Other Goods (durables, recyclables):
- Long-run price elasticity of supply is less than short-run price elasticity of supply

SSR

Price

SLR

Due to limited

capacity, firms

are limited by

output constraints

in the short-run.

In the long-run, they

can expand.

Quantity

Primary Copper: Short-Run and

Long-Run Supply Curves

SLR

SSR

Price

Price increases

provide an incentive

to convert scrap

copper into new supply.

In the long-run, this

stock of scrap copper

begins to fall.

Quantity

Secondary Copper: Short-Run and

Long-Run Supply Curves

S’

S

A freeze or drought

decreases the supply

of coffee

P1

P0

Short-Run

1) Supply is completely inelastic

2) Demand is relatively inelastic

3) Very large change in price

D

Q1

Coffee

Price

Quantity

Q0

S’

S

Price

P2

P0

Intermediate-Run

1) Supply and demand are

more elastic

2) Price falls back to P2.

3) Quantity falls to Q2

D

Quantity

Q2

Q0

Coffee

Price

Long-Run

1) Supply is extremely elastic.

2) Price falls back to P0.

3) Quantity increase to Q0.

S

P0

D

Quantity

Q0

Coffee

- First, we must learn how to “fit” linear demand and supply curves to market data.
- Then we can determine numerically how a change in a variable will cause supply or demand to shift and thereby affect the market price and quantity.

- Available Data
- Equilibrium Price, P*
- Equilibrium Quantity, Q*
- Price elasticity of supply, ES, and demand, ED.

Supply: Q = c + dP

a/b

ED = -bP*/Q*

ES = dP*/Q*

P*

-c/d

Demand: Q = a - bP

Q*

Price

Quantity

- If the government decides that the equilibrium price is too high, they may establish a maximum allowable ceiling price.

S

If price is regulated to

be no higher than Pmax,

quantity supplied falls

to Q1 and quantity

demanded increases to

Q2. A shortage results

P0

Pmax

D

Excess demand

Q0

Price

Quantity

- In 1954, the federal government began regulating the wellhead price of natural gas.
- In 1962, the ceiling prices that were imposed became binding and shortages resulted.
- Price controls created an excess demand of 7 trillion cubic feet.
- Price regulation was a major component of U.S. energy policy in the 1960s and 1970s, and it continued to influence the natural gas markets in the 1980s.