1、 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.Prepared by:Fernando&Yvonn QuijanoWhere Prices Come From:The Interaction of Demand and Supply 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where P
2、rices Come From:The Interaction of Demand and Supply2 of 34 After studying this chapter,you should be able to:Discuss the variables that influence demand.Discuss the variables that influence supply.Use a graph to illustrate market equilibrium.Use demand and supply graphs to predict changes in prices
3、 and quantities.Carly FiorinaHow Hewlett-Packard Managesthe Demand for PrintersLEARNING OBJECTIVES Because of the importance of printers to Hewlett-Packard,the company devotes significant resources to monitoring and forecasting consumer demand.1234 2006 Prentice Hall Business Publishing Economics R.
4、Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply3 of 34The Demand Side of the MarketThe Demand of an Individual BuyerLEARNING OBJECTIVE1Quantity demanded The quantity of a good or service that a consumer is willing to purchase at a give
5、n price.3-1Plotting a Price-Quantity Combination on a GraphAt a price of$125 per printer,Kate,the purchasing manager for the Prudential Insurance Company,will be willing to buy 5 printers in the next month.2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.
6、CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply4 of 34The Demand Side of the MarketDemand schedule A table showing the relationship between the price of a product and the quantity of the product demanded.Demand curve A curve that shows the relationship between the price of a pr
7、oduct and the quantity of the product demanded.Demand Schedules and Demand Curves3-2Kates Demand Schedule and Demand Curve 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply5 of 34The Dem
8、and Side of the MarketIndividual Demand and Market DemandMarket demand The demand for a product by all the consumers in a given geographical area.3-3Deriving the Market Demand Curve from Individual Demand Curves 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1
9、st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply6 of 34The Demand Side of the MarketThe Law of DemandThe Law of Demand Holding everything else constant,when the price of a product falls,the quantity demanded of the product will increases,and when the price of a product ris
10、es,the quantity demanded of the product will decrease.What Explains the Law of Demand?Substitution effect The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods that are substitutes.Income effect The change in
11、the quantity demanded of a good that results from the effect of a change in the goods price on consumer purchasing power.2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply7 of 34The Deman
12、d Side of the MarketHolding Everything Else Constant:The Ceteris Paribus ConditionCeteris paribus (“all else equal”)The requirement that when analyzing the relationship between two variablessuch as price and quantity demandedother variables must be held constant.2006 Prentice Hall Business Publishin
13、g Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply8 of 34The Demand Side of the Market Price of related goodsSubstitutes Goods and services that can be used for the same purpose.Complements Goods that are used together.Incom
14、eNormal good A good for which the demand increases as income rises and decreases as income falls.Inferior good A good for which the demand increases as income falls,and decreases as income rises.Tastes Population and demographicsDemographics The characteristics of a population with respect to age,ra
15、ce,and gender.Expected future pricesVariables That Shift Market Demand3-4Shifting the Demand Curve 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply9 of 34Why Supermarkets Need to Unders
16、tand Substitutes and Complements3-1A supermarket shouldnt remove a slow-selling soup from its shelves without researching whether shoppers use that soup as a substitute or a complement for another soup.COFFEEFROZENPIZZAHOTDOGSICECREAMPOTATOCHIPSREGULARCEREALSPAGHETTISAUCEYOGURTVarieties in FiveChica
17、goSupermarkets391337128421285242194288VarietiesIntroducedin a 2-Year Period113109471299311470107Varieties Removedin a 2-Year Period135863211877753651 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Dema
18、nd and Supply10 of 34Companies Respond to a Growing Hispanic Population3-2Firms are responding to the tastes of a growing Hispanic population.Some Home Depot stores,for example,include signs in both English and Spanish.2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick
19、OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply11 of 34The Demand Side of the MarketVariables That Shift Market DemandVariables That Shift MarketDemand Curves3-1 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3
20、:Where Prices Come From:The Interaction of Demand and Supply12 of 34The Demand Side of the MarketVariables That Shift Market DemandVariables That Shift MarketDemand Curves3-1(continued)2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Price
21、s Come From:The Interaction of Demand and Supply13 of 34The Demand Side of the MarketA Change in Demand versus a Change in Quantity Demanded3-5A Change in Demand versus a Change in the Quantity Demanded 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHA
22、PTER 3:Where Prices Come From:The Interaction of Demand and Supply14 of 34Estimating the Demand for Printers at Hewlett-Packard3-3Inaccurate forecasts in 2001 caused Hewlett-Packard to produce more printers than they could sell.2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony
23、 Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply15 of 34The Supply Side of the MarketQuantity supplied The quantity of a good or service that a firm is willing to supply at a given price.LEARNING OBJECTIVE2Supply schedule A table that shows the relationship
24、 between the price of a product and the quantity of the product supplied.Supply curve A curve that shows the relationship between the price of a product and the quantity of the product demanded.Supply Schedules and Supply Curves 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthon
25、y Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply16 of 34The Supply Side of the Market3-6Hewlett-Packards SupplySchedule and Supply Curve 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Co
26、me From:The Interaction of Demand and Supply17 of 34The Supply Side of the MarketIndividual Supply and Market Supply3-7Deriving the Market Supply Curve from the Individual Supply Curves 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Pric
27、es Come From:The Interaction of Demand and Supply18 of 34The Supply Side of the MarketThe Law of SupplyLaw of supply Holding everything else constant,increases in price cause increases in the quantity supplied,and decreases in price cause decreases in the quantity supplied.2006 Prentice Hall Busines
28、s Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply19 of 34The Supply Side of the Market Price of inputs Technological changeA positive or negative change in the ability of a firm to produce a given level of output
29、 with a given amount of inputs.Prices of substitutes in production Expected future prices Number of firms in the marketVariables That Shift Supply 3-8Shifting the Supply Curve 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come Fr
30、om:The Interaction of Demand and Supply20 of 34The Supply Side of the MarketVariables That Shift SupplyVariables That Shift MarketSupply Curves3-2 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand
31、and Supply21 of 34The Supply Side of the MarketVariables That Shift SupplyVariables That Shift MarketSupply Curves3-2(continued)2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply22 of 34T
32、he Difference between a Change in Supply versus a Change in the Quantity SuppliedThe Supply Side of the MarketA Change in Supply versus a Change in Quantity Supplied3-9 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The
33、Interaction of Demand and Supply23 of 34Market Equilibrium:Putting Demand and Supply TogetherLEARNING OBJECTIVE3Market equilibrium A situation where quantity demanded equals quantity supplied.Competitive market equilibrium A market equilibrium with many buyers and many sellers.3-10Market Equilibrium
34、 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply24 of 34Market Equilibrium:Putting Demand and Supply TogetherHow Markets Eliminate Surpluses and ShortagesSurplus A situation in which t
35、he quantity supplied is greater than the quantity demanded.Shortage A situation in which the quantity demanded is greater than the quantity supplied.3-11The Effect of Surpluses and Shortages on the Market Price 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1s
36、t ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply25 of 34 Demand and Supply Both Count:A Tale of Two Letters3-1LEARNING OBJECTIVE3Although the demand for Lincolns letters is greater than Booths,the supply of Booths letters is much smaller,which explains why the equilibrium p
37、rice for Booths letters is higher.2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply26 of 34LEARNING OBJECTIVE4The Effect of Shifts in Supply on Equilibrium3-12The Effect of a Decrease in
38、 Supply on EquilibriumThe Effect of Demand and Supply Shifts on Equilibrium 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply27 of 34The Falling Price of LargeFlat-Screen TelevisionsCorn
39、ings breakthrough spurred the manufacture of LCD televisions in Taiwan,South Korea,and Japan,and an eventual decline in price.3-4 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply28 of 3
40、4The Effect of Shifts in Demand on Equilibrium3-13The Effect of an Increase in Demand on EquilibriumThe Effect of Demand and Supply Shifts on Equilibrium 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of
41、Demand and Supply29 of 34The Effect of Shifts in Demand and Supply over Time3-14Shifts in Demand and Supply over TimeThe Effect of Demand and Supply Shifts on Equilibrium 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:Th
42、e Interaction of Demand and Supply30 of 34The Effect of Shifts in Demand and Supply over Time3-13The Demand for Chicken Has Increased MoreThan the SupplyThe Effect of Demand and Supply Shifts on Equilibrium 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed
43、.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply31 of 34 High Demand and Low Prices in the Lobster Market?3-2LEARNING OBJECTIVE4Supply and demand for lobster both increase during the summer,but the increase in supply is greater than the increase in demand,therefore,equilibrium
44、price falls.2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply32 of 34Remember:A Change in a Goods Price Does Not Cause the Demand or Supply Curve to Shift.The second shift,from D2 to D3,
45、does not occur.After an increase in demand,from D1 to D2,the higher resulting price does not lead to a leftward shift of the demand curve to D3.2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and
46、 Supply33 of 34Picking a Big Fight with Dell,H-P Cuts PC Profits Razor-Thin 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply34 of 34Ceteris paribus(“all else equal”)Competitive marketeq
47、uilibriumComplementsDemand curveDemand scheduleDemographicsIncome effectInferior goodLaw of demandLaw of supplyMarket demandMarket equilibriumNormal goodQuantity demandedQuantity suppliedShortageSubstitutesSubstitution effectSupply curveSupply scheduleSurplusTechnological change 2006 Prentice Hall Business Publishing Economics R.Glenn Hubbard,Anthony Patrick OBrien1st ed.CHAPTER 3:Where Prices Come From:The Interaction of Demand and Supply2021
