1、Chapter 4Supply and DemandFall 20171Questions If you are making real estate investment decisions,how would you predict the effect of the policy changes?What are the real factor driving the residential housing price in China?What are the long-run perspectives of Chinese real estate markets?2The Marke
2、t Mechanism A Market is a mechanism through which buyers and sellers interact to determine prices and exchange goods,services,and assets Geographical area;Time period;Good/service being traded The“indivisible hand”No single individual or organization or government is responsible for solving the econ
3、omic problems in a market economy Our society,despite of its fragility(surprise!),functions well for most of the time in a spontaneous manner To know how market help to solve the important questions and to be familiar with the following economic concepts,we need to study the demand and supply model(
4、D-S model)Price;market equilibrium;efficiency3Markets and Competition Supply and demand Words economists use most oftenThe forces that make market economies workRefer to the behavior of people as they interact with one another in competitive markets4Markets and Competition MarketA group of buyers an
5、d sellers of a particular good or serviceBuyers as a groupDetermine the demand for the productSellers as a group Determine the supply of the product5Markets and Competition Markets take many formsHighly organizedMarkets for many agricultural commoditiesLess organizedMarket for ice cream in a particu
6、lar town6Markets and Competition Competitive marketMarket in which there are many buyers and many sellersEach has a negligible impact on market pricePrice and quantity are determined by all buyers and sellersAs they interact in the marketplace7Markets and Competition Perfectly competitive marketGood
7、s offered for sale are all exactly the sameBuyers and sellers are so numerous No single buyer or seller has any influence over the market pricePrice takersAt the market priceBuyers can buy all they wantSellers can sell all they want8Markets and Competition MonopolyThe only seller in the marketSets t
8、he price Other marketsBetween perfect competition and monopoly9Demand Quantity demandedAmount of a good that buyers are willing and able to purchase Law of demandOther things equalWhen the price of a good rises,the quantity demanded of the good fallsWhen the price falls,the quantity demanded rises10
9、Demand DemandRelationship between the price of a good and quantity demandedDemand schedule:a tableDemand curve:a graphPrice on the vertical axisQuantity on the horizontal axis Individual demandAn individuals demand for a product 11Figure 1Catherines Demand Schedule and Demand CurveDemand curveThe de
10、mand schedule is a table that shows the quantity demanded at each price.The demand curve,which graphs the demand schedule,illustrates how the quantity demanded of the good changes as its price varies.Because a lower price increases the quantity demanded,the demand curve slopes downward.Price ofIce-C
11、reamConeQuantity ofConesDemanded$0.000.501.001.502.002.503.0012 cones108642001210 1191 2 3 4 5 6 7 8Quantity of Ice-Cream Cones$3.002.502.001.501.000.50Price of Ice-Cream Cones 1.A decreasein price.2.increases quantityof cones demanded.12Demand Market demandSum of all individual demands for a good o
12、r service Market demand curveSum the individual demand curves horizontallyTotal quantity demanded of a good variesAs the price of the good variesOther things constant13Figure 2Market Demand as the Sum of Individual DemandsThe quantity demanded in a market is the sum of the quantities demanded by all
13、 the buyers at each price.Thus,the market demand curve is found by adding horizontally the individual demand curves.At a price of$2.00,Catherine demands 4 ice-cream cones,and Nicholas demands 3 ice-cream cones.The quantity demanded in the market at this price is 7 cones.14Figure 2Market Demand as th
14、e Sum of Individual DemandsDCatherine012101191 2 3 4 5 6 7 8Quantity of Ice-Cream Cones$3.002.502.001.501.000.50Price ofIce-CreamConesCatherines demandDNicholas01 2 3 4 5 6 7Quantity of Ice-Cream Cones$3.002.502.001.501.000.50Price ofIce-CreamConesNicholass demand+=DMarket0182 4 6 8 10 121416Quantit
15、y of Ice-Cream Cones$3.002.502.001.501.000.50Price ofIce-CreamConesMarket demand15Demand Shifts in the demand curveIncrease in demandAny change that increases the quantity demanded at every priceDemand curve shifts rightDecrease in demandAny change that decreases the quantity demanded at every price
16、Demand curve shifts left16Figure 3Shifts in the Demand CurvePrice of Ice-Cream Cones Quantity of Ice-Cream Cones 0Demand curve,D1Demand curve,D3Demand curve,D2Increase inDemand Decrease inDemand Any change that raises the quantity that buyers wish to purchase at any given price shifts the demand cur
17、ve to the right.Any change that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve to the left.17Demand Variables that can shift the demand curveIncomePrices of related goodsTastesExpectationsNumber of buyers18Demand IncomeNormal goodOther things constantAn i
18、ncrease in income leads to an increase in demandInferior goodOther things constantAn increase in income leads to a decrease in demand19Demand Prices of related goodsSubstitutes,two goodsAn increase in the price of oneLeads to an increase in the demand for the otherComplements,two goodsAn increase in
19、 the price of oneLeads to a decrease in the demand for the other20Demand TastesChange in tastes:changes the demand Expectations about the future Expect an increase in incomeIncrease in current demandExpect higher pricesIncrease in current demand Number of buyers,increasesMarket demand increases21Tab
20、le 1Variables That Influence BuyersThis table lists the variables that affect how much consumers choose to buy of any good.Notice the special role that the price of the good plays:A change in the goods price represents a movement along the demand curve,whereas a change in one of the other variables
21、shifts the demand curve.22Two ways to reduce the quantity of smoking demanded1.Shift the demand curve for cigarettes and other tobacco products 2.Try to raise the price of cigarettes“What is the best way tostop this?”23Two ways to reduce the quantity of smoking demanded1.Shift the demand curve for c
22、igarettes and other tobacco products Public service announcementsMandatory health warnings on cigarette packagesProhibition of cigarette advertising on televisionIf successfulShift demand curve to the left24Two ways to reduce the quantity of smoking demanded2.Try to raise the price of cigarettesTax
23、the manufacturer:higher priceMovement along demand curve 10%in price 4%in smoking Teenagers:10%in price 12%in smokingDemand for cigarettes vs.demand for marijuana Appear to be complements25Figure 4Shifts in the Demand Curve versus Movements along the Demand CurvePrice of Cigarettes,per Pack Number o
24、f Cigarettes Smoked per Day0D1D2A policy to discourage smoking shifts the demand curve to the left1020$2.00BA(a)A Shift in the Demand CurveIf warnings on cigarette packages convince smokers to smoke less,the demand curve for cigarettes shifts to the left.In panel(a),the demand curve shifts from D1 t
25、o D2.At a price of$2.00 per pack,the quantity demanded falls from 20 to 10 cigarettes per day,as reflected by the shift from point A to point B.By contrast,if a tax raises the price of cigarettes,the demand curve does not shift.Instead,we observe a movement to a different point on the demand curve.I
26、n panel(b),when the price rises from$2.00 to$4.00,the quantity demanded falls from 20 to 12 cigarettes per day,as reflected by the movement from point A to point C.Price of Cigarettes,per Pack Number of Cigarettes Smoked per Day0D1A tax that raises the price of cigarettes results in a movement along
27、 the demand curve12202.00CA(b)A Movement along the Demand Curve$4.0026Demand Function The Demand Function describes the relationship between the amount of a good or service that consumers are willing to purchaseQ=a-bP,a0,b0 Law of Demand：-b0,d040Supply and Demand Together Equilibrium Various forces
28、are in balanceA situation in which market price has reached the level whereQuantity supplied=quantity demandedSupply and demand curves intersect41Supply and Demand Together Equilibrium priceBalances quantity supplied and quantity demandedMarket-clearing price Equilibrium quantity Quantity supplied a
29、nd quantity demanded at the equilibrium price42Figure 8The Equilibrium of Supply and DemandSupply01210 1191 2 3 4 5 6 7 8Quantity of Ice-Cream Cones$3.002.502.001.501.000.50Price ofIce-CreamCones EquilibriumDemandEquilibriumpriceEquilibriumquantityThe equilibrium is found where the supply and demand
30、 curves intersect.At the equilibrium price,the quantity supplied equals the quantity demanded.Here the equilibrium price is$2.00:At this price,7 ice-cream cones are supplied,and 7 ice-cream cones are demanded.43Supply and Demand Together SurplusQuantity supplied quantity demandedExcess supplyDownwar
31、d pressure on priceMovements along the demand and supply curvesIncrease in quantity demandedDecrease in quantity supplied 44Supply and Demand Together ShortageQuantity demanded quantity suppliedExcess demandUpward pressure on priceMovements along the demand and supply curvesDecrease in quantity dema
32、ndedIncrease in quantity supplied45Figure 9Markets Not in EquilibriumPrice ofIce-CreamConesQuantity of Ice-Cream Cones 0Demand7$2.50(a)Excess SupplyIn panel(a),there is a surplus.Because the market price of$2.50 is above the equilibrium price,the quantity supplied(10 cones)exceeds the quantity deman
33、ded(4 cones).Suppliers try to increase sales by cutting the price of a cone,and this moves the price toward its equilibrium level.In panel(b),there is a shortage.Because the market price of$1.50 is below the equilibrium price,the quantity demanded(10 cones)exceeds the quantity supplied(4 cones).With
34、 too many buyers chasing too few goods,suppliers can take advantage of the shortage by raising the price.Hence,in both cases,the price adjustment moves the market toward the equilibrium of supply and demand(b)Excess demand2.00Supply Surplus 4Quantitydemanded10QuantitysuppliedPrice ofIce-CreamConesQu
35、antity of Ice-Cream Cones 0Demand71.50$2.00Supply Shortage4Quantitysupplied10Quantitydemanded46Supply and Demand Together Law of supply and demandThe price of any good adjusts To bring the quantity supplied and the quantity demanded for that good into balance In most marketsSurpluses and shortages a
36、re temporary47Supply and Demand Together Three steps to analyzing changes in equilibrium1.Decide whether the event shifts the supply curve,the demand curve,or,in some cases,both curves2.Decide whether the curve shifts to the right or to the left3.Use the supply-and-demand diagramCompare the initial
37、and the new equilibriumEffects on equilibrium price and quantity48Table 3Three Steps for Analyzing Changes in Equilibrium1.Decide whether the event shifts the supply or demand curve(or perhaps both).2.Decide in which direction the curve shifts.3.Use the supply-and demand diagram to see how the shift
38、 changes the equilibrium price and quantity.49Supply and Demand Together A change in market equilibrium due to a shift in demandOne summer,very hot weatherEffect on the market for ice cream?1.Hot weather:shifts the demand curve(tastes)2.Demand curve shifts to the right 3.Higher equilibrium price;hig
39、her equilibrium quantity50Figure 10How an increase in demand affects the equilibriumSupplyNew equilibriumD2An event that raises quantity demanded at any given price shifts the demand curve to the right.The equilibrium price and the equilibrium quantity both rise.Here an abnormally hot summer causes
40、buyers to demand more ice cream.The demand curve shifts from D1 to D2,which causes the equilibrium price to rise from$2.00 to$2.50 and the equilibrium quantity to rise from 7 to 10 cones.Price ofIce-CreamConesQuantity of Ice-Cream Cones 07$2.502.0010D1Initial equilibrium1.Hot weather increases the d
41、emand for ice cream.2.resulting in a higher price.3.and a higherquantity sold.51Supply and Demand Together Shifts vs.movements along curves Shift in the supply curveChange in supplyMovement along a fixed supply curveChange in the quantity suppliedShift in the demand curveChange in demandMovement alo
42、ng a fixed demand curveChange in the quantity demanded52Supply and Demand Together A change in market equilibrium due to a shift in supplyOne summer,a hurricane destroys part of the sugarcane crop:higher price of sugar Effect on the market for ice cream?1.Change in price of sugar:supply curve2.Suppl
43、y curve:shifts to the left3.Higher equilibrium price;lower equilibrium quantity53Figure 11How a Decrease in Supply Affects the EquilibriumS1New equilibriumS2An event that reduces quantity supplied at any given price shifts the supply curve to the left.The equilibrium price rises,and the equilibrium
44、quantity falls.Here an increase in the price of sugar(an input)causes sellers to supply less ice cream.The supply curve shifts from S1 to S2,which causes the equilibrium price of ice cream to rise from$2.00 to$2.50 and the equilibrium quantity to fall from 7 to 4 cones.Price ofIce-CreamConesQuantity
45、 of Ice-Cream Cones 07$2.502.004DemandInitial equilibrium1.An increase in the price of sugar reducesthe supply of ice cream.2.resulting in a higher price.3.and a lowerquantity sold.54Supply and Demand Together Shifts in both supply and demandOne summer:hurricane and heat wave1.Heat wave shifts the d
46、emand curve;hurricane shifts the supply curve2.Demand curve shifts to the right;Supply curve shifts to the left 3.Equilibrium price raisesIf demand increases substantially while supply falls just a little:equilibrium quantity risesIf supply falls substantially while demand rises just a little:equili
47、brium quantity falls55Figure 12A Shift in Both Supply and DemandPrice ofIce-CreamConesQuantity of Ice-Cream Cones 0D1P2(a)Price Rises,Quantity RisesHere we observe a simultaneous increase in demand and decrease in supply.Two outcomes are possible.In panel(a),the equilibrium price rises from P1 to P2
48、,and the equilibrium quantity rises from Q1 to Q2.In panel(b),the equilibrium price again rises from P1 to P2,but the equilibrium quantity falls from Q1 to Q2.(b)Price Rises,Quantity FallsP1S1Q1Q2D2S2Initial equilibriumNew equilibriumSmall decreasein supplyLarge increasein demandPrice ofIce-CreamCon
49、esQuantity of Ice-Cream Cones 0D1P2P1S1Q1Q2D2S2InitialequilibriumNew equilibriumLarge decreasein supplySmall increasein demand56Table 4What Happens to Price and Quantity When Supply or Demand Shifts?As a quick quiz,make sure you can explain at least a few of the entries in this table using a supply-
50、and-demand diagram.57How Prices Allocate Resources Supply and demand together Determine the prices of the economys many different goods and services“Two dollars”“and seventy-five cents.”58How Prices Allocate Resources Prices Signals that guide the allocation of resourcesMechanism for rationing scarc
