...Supply, Demand & Government in the Markets Randall Jaeck Argosy University The graph above shows the equilibrium price and quantity of computers in the marketplace. The equilibrium is where the price and demand meet. For the graph above it is 1750 units and a price of $125. If left alone a market would naturally settle into equilibrium. With the market equilibrium price it ensures that the sellers willing to sell at that price and the buyers willing to buy at that price will get what they want. At equilibrium supply equals demand but in some cases the government will interfere with the market adding taxes, price ceilings and price floors. We will take a look at what happens to the market when these occur. First we will look at what would happen if the government imposes a special tax on these computers. If the government interferes with a taxation it would then force the sellers to raise their prices for those computers because the sellers want to maintain their profit margin. The supply curve would shift upwards by whatever the tax amount is. Sellers would sell less computers and if buyers still want these computers they will need to spend more for them because of the tax and the fact that since they now cost more and there would be less to sell. Sometimes governments impose a price ceiling which is an upper limit for the price of the computers, when a price ceiling has been implemented sellers cannot charge more than the ceiling price. If the...
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...in relation to the supply and demand curves represent very different market phenomena: Movements A movement refers to a change along a curve. On the demand curve, a movement denotes a change in both price and quantity demanded from one point to another on the curve. The movement implies that the demand relationship remains consistent. Therefore, a movement along the demand curve will occur when the price of the good changes and the quantity demanded changes in accordance to the original demand relationship. In other words, a movement occurs when a change in the quantity demanded is caused only by a change in price, and vice versa. Like a movement along the demand curve, a movement along the supply curve means that the supply relationship remains consistent. Therefore, a movement along the supply curve will occur when the price of the good changes and the quantity supplied changes in accordance to the original supply relationship. In other words, a movement occurs when a change in quantity supplied is caused only by a change in price, and vice versa. A movement along the supply curve is just a change in price and the corresponding quantity demanded at that price. A shift occurs when something exogenous changes, like the amount of money people have. When people have more money, the entire demand curve shifts. People demand more at each price. If the supply curve shifts, the price increases for each quantity. Shifts A shift in a demand or supply curve occurs when...
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...Microeconomics Chapter 1 –Introduction- Microeconomics: * The study of how individuals and firms make themselves as well of as possible in a world of scarcity(shortage) and the consequences of those individual decisions for markets and the entire economy. * Often called price theory: emphasize the important role of the price 1.1 Microeconomics: The Allocation of Scare Resources Trade-Offs: * Which goods and services to produce: limitation of production, resources ( worker, raw materials, capital and energy) * How to produce: to produce a given output a firm needs to use more of one resource and less of another * Who gets the goods and services: the more of society’s goods and services you get, the less someone else gets Who makes the Decisions: * The government * A company Price Determine Allocations: * Market: an exchange mechanism that allows buyers to trade with sellers 1.2 Models Model: * a description of the relationship between two or more economic variables * can be used to predict the effect of a change of one variable Simplifications by Assumptions: * Example: Income threshold model of China to explain car purchasing behavior in China * Only the income is important Testing Theories: * Testing theories by checking whether predictions are correct Positive vs. Normative: * Positive statement: a testable hypothesis about cause and effect * Test the truth of a statement * Normative statement:...
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...Question 1.1: Explain how a change in the demand or supply affects the equilibrium price and quantity in any market. What is “demand”? Demand is the outcome of decisions about which wants to satisfy, given the available means. If you demand something (in the economic sense), it means that you intend to buy it and that you have the means (the purchasing power) to do so. In simple terms, when we talk about demand we are referring to the quantities of goods or services that the potential buyers are willing and able to buy. The law of demand states that if all other factors remain equal, the higher the price of a good, the less people will demand that good. Simply, the higher the price, the lower the quantity demand. Chart 1 above was downloaded from “www.investopedia.com/university/economics/economics3.asp” Point A,B,C clearly shows a negative demand relationship. As the price increases, the lower the quantity demanded. What is “supply”? Mohr et al (197:2004) defines supply “as the quantities of a good or service that producers plan to sell for a possible price during a certain period.” Producers must be able to supply the quantities concerned although there is no guarantee that the quantity supplied will be actually sold. The quantity sold will depend on the demand for the product or service. The greater the demand, the greater the quantity sold. Chart 2 above was downloaded from “www.investopedia.com/university/economics/economics3.asp” Points A,B,C clearly...
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...Using Supply and Demand 5 A f t e r r e a d i n g t h i s c h a p t e r, y o u s h o u l d b e a b l e t o : Show the effect of a shift in demand and supply on equilibrium price and quantity. Explain real-world events using supply and demand. Demonstrate the effect of a price ceiling and a price floor on a market. Explain the effect of taxes, tariffs, and quotas on equilibrium price and quantity. State the limitations of demand and supply analysis. State six roles of government. It is by invisible hands that we are bent and tortured worst. Nietzsche I n the last chapter we introduced you to the concepts of supply and demand. In this chapter we will (1) show you the power of supply and demand, (2) show you how the invisible hand interacts with social and political forces to change the outcome of supply and demand analysis; and (3) discuss how one must adjust supply and demand analysis with other issues kept at the back of one’s mind. THE POWER OF SUPPLY AND DEMAND To ensure that you understand the supply and demand graphs throughout the book, and can apply them, let’s go through an example. Figure 5-1(a) deals with an increase in demand. Figure 5-1(b) deals with a decrease in supply. 104 USING SUPPLY AND DEMAND s CHAPTER 5 105 Figure 5-1 (a and b) SHIFTS IN SUPPLY AND DEMAND When there is an increase in demand (the demand curve shifts outward), there is upward pressure on the price, as shown in (a). If demand increases from D0 to D1, the quantity of...
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...Essay on the New Policy of the Australian Government Introduction In 2012, the Australian government introduced and implemented new regulations aimed at improving the quality of childcare provision. Aspects of the regulation included staff obtaining higher education levels and increasing the staff children ratios. These changes will affect both producers and supply for firms and the industry as a whole. In addition, inter-related markets such as input, complementary and subsititute markets(Leigh, Ettenson & Cumsille, 2000) will be influenced by the regulatory changes. This essay will outlined the main regulatory changes in the childcare industry and discuss the implications of regulatory changes on the childcare market and related markets using demand and supply analysis. From a broader sense, the advantages associated with the regulatory changes in the childcare outweigh the disadvantages for the improvement of education level of staff will lead to a healthier and qualified environment for the childcare service environment, and help children to have a better opportunity to obtain good habit and qualities. Changes of the Australian Government Policy Great changes in the child care center managements have been made by Australian government in 2012. The childcare center is important places for children to get educated and helped by adults with great qualities. Therefore, the key changes in the process are that Australian government carried out new policies to improve the education...
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...SUPPLY AND DEMAND WHAT IS THIS CHAPTER ALL ABOUT? This chapter introduces market behavior and the intricacies of the market mechanism. It is helpful to continue to answer the basic questions of WHAT, HOW, and FOR WHOM and to briefly outline how the market system answers them. The chapter focuses on the allocative and distributive functions of the price system. The section on disequilibrium pricing -- price ceilings and floors -- provides an opportunity to illustrate the upside and downside of interference with market pricing mechanisms. The opening illustration of a kidney sale on eBay demonstrates the power and potential problems of markets. This introduction sets the general direction of this chapter, which is to look at how the market system answers the following questions: 1. What determines the price of a good or a service? 2. How does the price of a product affect its production and consumption? 3. Why do prices and production levels often change? NEW TO THIS EDITION • New headline on campus drinking • New headline on demand shifts for natural gas • One new question for discussion • One new problem LECTURE LAUNCHERS Where should you start? Supply and Demand analysis is the foundation of much of the analysis the student will perform during the semester. Therefore, it is important that students get a good start with this material. 1. Begin your discussion by identifying...
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...Fall 2012 CHAPTER 1: THE CHALLENGE OF ECONOMICS 1 CHAPTER 1: THE CHALLENGE OF ECONOMICS Definitions and Questions All economic questions and problems arise because human wants exceed the resources available to satisfy them. Scarcity: - The condition that arises because the available resources are insufficient to satisfy wants. o Our resources are limited but our wants are unlimited. - Scarcity: Lack of enough resources to satisfy all desired uses of those resources The Central Problem of Scarcity Our materialistic wants and desires continue to grow. - Newest camera phone - Larger television - Bigger house - Exotic vacation Why can’t we have everything we want? - Our wants exceed our resources. Economics and Opportunity Cost Economics – the study of how best to allocate scare resources among competing users. Opportunity cost – The value or price of the most desired goods and services that are foregone in order to obtain something else. - The next best alternative that you give up. Factors of Production Resource inputs used to produce goods and services. The four resources: - Labor, land, capital and entrepreneurship Resources are factors of production. Economic resources – all natural human and manufactured resources that can be used in the production of goods and services. Land – arable land, forests, minerals, energy (oil deposits and coal), water, air, wild plants, animals, birds and fish. Labor – all the physical and intellectual talents that can...
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...suggested that a government subsidy could help employers finance the higher wage. Suppose the supply of low-skilled labor is given by LS = 10w, where L is the quantity of low-skilled labor (in millions of persons employed each year), and w is the wage rate (in dollars per hour). The demand for labor is given by LD = 80 – 10w. (a) What will be the free-market wage rate and employment level? Suppose the government sets a minimum wage of $5 per hour. How many people would then be employed? (b) Suppose that instead of a minimum wage, the government pays a subsidy of $1 per hour for each employee. What will the total level of employment be now? What will the equilibrium wage rate be? Answer. (a) In a free-market equilibrium, LS = LD. Solving yields w = $4 and LS = LD = 40. If the minimum wage is $5, then LS = 50 and LD = 30. The number of people employed will be given by the labor demand, so employers will hire only 30 million workers. w S 8 LS 5 4 LD 30 40 50 80 L 1 (b) Let ws denote the wage received by the sellers (i.e., the employees), and wb the wage paid by the buyers (the firms). The new equilibrium occurs where the vertical difference between the supply and demand curves is $1 (the amount of the subsidy). This point can be found where LD (wb) = LS (ws), and ws – wb = 1 Write the second equation as wb = ws – 1. This reflects the fact that firms pay $1 less than the wage received by workers because of the subsidy. Substitute for wb in the demand equation: LD...
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...2013 The mixing of supply and consumer demand is very important to consumers because the combination of these two typically sets the price of a good or service. The final market price is dependent upon both of these components of a market. When buyers and sellers agree on a price, that’s called the equilibrium price. For consumers and sellers, the law of supply and demand is a rule of thumb that holds true in the market. With other things being equal, price and the quantity demanded are inversely related; this means the greater the demand for a product or service, the higher the price and lower the demand for a product or service, the lower the price. Other things being equal, refers to factors that can affect demand, such as the availability of substitute goods or changes in consumer tastes. This analysis will provide a discussion of how supply and demand affects consumers, especially with respect to price, availability of goods or services. In the law of supply and demand, the quantity demanded is distinct from demand, which refers to the entire relationship between price and quantity demanded. There are a number of factors that affect both supply and demand and, as a result, consumers. When demand or supply for a good or service changes, the equilibrium price for the good or service changes also, so changes in demand or supply always have an effect on consumers where price is concerned. There are a number of factors that affect demand; these factors include income...
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...Use the Supply & Demand model to explain how a good’s price is determined In ordinary practice, price is the quantity of payment or reimbursement given by one party to another in return for goods and services. It is generally expressed in some form of currency. This essay will discuss how a good’s price is determined using the demand & supply model. Supply & demand is perhaps one of the most fundamental concepts of economics. It is an economic model of price determination in a market. It ascertains that in a competitive market the unit price for a specific good will fluctuate until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers, resulting in an economic equilibrium of price & quantity. DEMAND Demand refers to the want or the willingness of the consumers to buy commodities. The demand for a product may be defined as the quantity of the product that a consumer will purchase at the existing price during a particular period of time. Demand is influenced by the price of commodities. The higher the price of the commodity, the lesser will be the demand of a rational consumer; other things remaining constant. The hypothesis of – other things remaining constant – is known as the ceteris paribus. The demand curve illustrates the relationship between price & quantity demanded (as the price increases the quantity demanded decreases). Movement along...
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...Hong Daiki Kim Meejoo Song Wooseung Sohn 1 I. INTRODUCTION In our presentation, there are four main subjects that we will be explaining today. Those subjects are: 1. Private goods and the Free Market System. 2.The Price Mechanism and the Invisible Hand 3. Public goods and the market failure 4. Public hand and the government failure. Before we go into the details, let me briefly give you the overview. First we have to approach these questions by asking ourselves… What do we mean by Exclusive? Of course, the word exclusive can be heard on a regular basis. For example, an exclusive interview with Professor Kim. Then what does the word exclusive mean? According to the dictionary, the word “exclusive” is defined as “not divided or shared with others” So how is this relevant to what we are studying? How is it connected to the rights? You might ask… There were discussions as to what “exclusiveness” meant. In my perspective, there are spiritual and material interests that are protected by the laws. Since, these interests are protected, as the characteristic of the rights, the interest become exclusive when it becomes a right. In having an exclusive right would mean that a person could enjoy the right at his or her wish. Therefore, we felt that there was a close link to the free market system and the right. Well, let’s go back to the last week’s lecture. If you can remember, Sun-young gave us a splendid presentation on the bourgeoisie last week. Then the professor explained to us...
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...A market is on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sells are allowed to transact freely based on a mutual agreement on price without state intervention. However, when prices are too high, low or start to fluctuate, governments take the view that markets are best suited to allocating scarce resources and allow the forces of supply and demand to set prices. A market will naturally settle into equilibrium: the equilibrium price ensures that all sellers who are willing to sell at that price and all buyers who are willing to buy at that price will get what they want. At equilibrium, supply is exactly equal to demand. However, in some cases, the government will interfere with the market, putting in minimum and maximum Prices. If the equilibrium price is the price that is stable under existing conditions, which must mean other prices will tend to be unstable. Consider what happens when the market price is below the equilibrium price. At low prices, producers supply less and consumers want to buy more than at the equilibrium price. This creates an excess demand, and causes a shortage of the product. Now consider what happens when the market price is above the equilibrium level. In this case there is an excess supply, or surplus, of the product. At high prices, producers are willing to produce more of the product, but consumers are willing to buy less than at the equilibrium price...
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...Supply, Demand, and Price Elasticity Team C-Carefree Challengers Kimberly Badgley, Randall Coakley, Stacy Engram, Misty Landwehr, Geneva Krager, and Gregory Minor ECO/212 September 13, 2010 Dr. Lyn Bush Supply, Demand, and Price Elasticity Introduction. (Misty) Changes in Supply and Demand (Kimberly) According to Hubbard and O’Brien (2010), the demand side of the curve influences by not what a customer wants to buy but what a buyer is willing to purchase. The demand curve shows the association between the price of a product and the amount of the product demanded. When the value of merchandise falls, the demand increases. Further, income, prices of a related product, tastes, population and demographics, and estimated future prices cause the change in demand (Hubbard & O’Brien, 2010). Income is relevant when a person cannot afford a product because of a lack of income. The prices of a related product or substitution will motivate a person to buy the cheaper of the two products. Tastes are what a person is willing to buy by his or her preference. Population is significant because if a product is popular, then more people will want to buy that product. If a person suspects prices will increase, then he or she will buy now, but if a person suspects prices will decrease, he or she will wait until the prices come down. Supply is the quantity of a good or service that a company is willing and able to supply at a given amount (Hubbard & O’Brien, 2010). The...
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.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 6 6 6 6 7 7 8 11 15 15 15 17 19 20 20 21 22 22 22 23 23 23 24 25 26 31 31 33 34 35 35 38 40 40 43 47 47 47 48 48 48 2 Microeconomics Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . The Demand Schedule . . . . . . . . . . . . . . . . . . . . The Supply Schedule . . . . . . . . . . . . . . . . . . . . . Equilibrium of Supply and Demand . . . . . . . . . . . . . Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The price elasticity of demand . . . . . . . . . . . . . . . . The income elasticity of demand . . . . . . . . . . . . . . . The cross-price elasticity of demand . . . . . . . . . . . . . The price elasticity of supply . . . . . . . . . . . . . . . . . Elasticity is not the same as slope . . . . . . . . . ....
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