Demand and Supply Analysis, Lecture notes of Economics

Download Demand and Supply Analysis and more Lecture notes Economics in PDF only on Docsity!

Chapter 3Chapter 3

Supply

and

Demand

Managerial Economics: Economic Tools for Today’s Decision Makers, 4/e By Paul Keat and Philip Young

Supply and Demand

• (^) Market Demand
• (^) Market Supply
• (^) Market Equilibrium
• (^) Comparative Statics Analysis
  • (^) Short-run Analysis
  • (^) Long-run Analysis
• (^) Supply, Demand, and Managerial Decision Making

Market Demand Market demand is the sum of all the individual demands.

Market Demand The inverse relationship between price and the quantity demanded of a good or service is called the Law of Demand.

Market Demand Changes in nonprice determinants result in changes in demand. This is shown as a shift in the demand curve.

Market Demand Nonprice determinants of demand

1. Tastes and preferences
2. Income
3. Prices of related products
4. Future expectations
5. Number of buyers

Market Supply Changes in price result in changes in the quantity supplied. This is shown as movement along the supply curve.

Market Supply Changes in nonprice determinants result in changes in supply. This is shown as a shift in the supply curve.

Market Equilibrium We are now able to combine supply with demand into a complete analysis of the market.

Market Equilibrium Equilibrium price : The price that equates the quantity demanded with the quantity supplied. Equilibrium quantity : The amount that people are willing to buy and sellers are willing to offer at the equilibrium price level.

Market Equilibrium Surplus : A market situation in which the quantity supplied exceeds the quantity demanded. A surplus occurs at a price above the equilibrium level.

Market Equilibrium

Comparative Statics Analysis

1. State all the assumptions needed to construct the model.
2. Begin by assuming that the model is in equilibrium.
3. Introduce a change in the model. In so doing, a condition of disequilibrium is created.

Comparative Statics Analysis

4. Find the new point at which equilibrium is restored.
5. Compare the new equilibrium point with the original one.