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Demand and supply (KINH tế VI mô SLIDE)
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SUPPLY AND DEMAND I: HOW MARKETS WORK
The Market Forces of
Supply and Demand
Copyright © 2004 South-Western
2
• Supply and demand are the two words that
economists use most often.
• Supply and demand are the forces that make
market economies work.
• Modern microeconomics is about supply,
demand, and market equilibrium.
Copyright © 2004 South-Western
MARKETS AND COMPETITION
• A market is a group of buyers and sellers of a
particular good or service.
• The terms supply and demand refer to the
behavior of people . . . as they interact with one
another in markets.
Copyright © 2004 South-Western
MARKETS AND COMPETITION
ã Buyers determine demand.
ã Sellers determine supply
Copyright â 2004 South-Western
I. DEMAND
1/ Definition:
• Quantity demanded is the amount of a good that
buyers are willing and able to purchase.
• Demand is the ability and the willingness to buy
a particular commodity at a given point of time,
other things equal (ceteris parabus).
• Law of Demand
• The law of demand states that, other things equal,
the quantity demanded of a good falls when the
price of the good rises.
Copyright © 2004 South-Western
2. Tools for demand demonstration
ã
ã
ã
ã
Demand Schedule
Demand Curve
Demand Equation
Demand Function
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2. Tools for demand demonstration
1. Demand Schedule
• The demand schedule is a table that shows the
relationship between the price of the good and the
quantity demanded.
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Catherine’s Demand Schedule
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The Demand Curve: The Relationship
between Price and Quantity Demanded
• Demand Curve
• The demand curve is a graph of the relationship
between the price of a good and the quantity
demanded.
Copyright © 2004 South-Western
Figure 1 Catherine’s Demand Schedule and Demand
Curve
Price of
Ice-Cream Cone
$3.00
2.50
1. A decrease
in price ...
2.00
1.50
1.00
0.50
0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity
of cones demanded.
Copyright © 2004 South-Western
* Market Demand versus Individual Demand
• Market demand refers to the sum of all
individual demands for a particular good or
service.
• Graphically, individual demand curves are
summed horizontally to obtain the market
demand curve.
Copyright © 2004 South-Western
The demand equation
Q = -aPx + b
Where:
Q: quantity demanded of good X
P: price of X
a : slope of demand curve (constant, >0)
b : intercept (constant, >0)
Example: Q = -5P + 100
Copyright © 2004 South-Western
The Demand function
Qx = f ( Px, I, Ps, Pc, T, E…)
Px: Price of goods X
I: Income of consumer
Ps: Price of substitutes
Pc: Price of complements
T: Taste of consumer
E: Expectation of consumer
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3. Movements along the Demand curve and
Shifts in the Demand Curve
• Change in Quantity Demanded
• Movement along the demand curve.
• Caused by a change in the price of the product.
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3.1.Changes in Quantity Demanded
Price of IceCream
Cones
B
$2.0
0
A tax that raises the
price of ice-cream
cones results in a
movement along the
demand curve.
A
1.00
D
0
4
8Quantity of Ice-Cream Cones
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3.2. Shifts in the Demand Curve
•
•
•
•
•
Consumer income
Prices of related goods
Tastes
Expectations
Number of buyers
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Shifts in the Demand Curve
• Change in Demand
• A shift in the demand curve, either to the left or
right.
• Caused by any change that alters the quantity
demanded at every price.
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Figure 3 Shifts in the Demand Curve
Price of
Ice-Cream
Cone
Increase
in demand
Decrease
in demand
Demand curve, D3
0
Demand
curve, D1
Demand
curve, D2
Quantity of
Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning
Shifts in the Demand Curve
• Consumer Income
• As income increases the demand for a normal good
will increase.
• As income increases the demand for an inferior
good will decrease.
One good is defined as normal or inferior good
depending on individual consuming behavior.
Copyright © 2004 South-Western
Consumer Income
Normal Good
Price of IceCream Cone
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
An increase
in income...
Increase
in demand
D1
0 1
D2
Quantity
of Ice2 3 4 5 6 7 8 9 10 11 12
Cream
Cones
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4. Movements along the demand curve and
Shifts in the Demand Curve
• Change in Quantity Demanded
• Movement along the demand curve.
• Caused by a change in the price of the product.
Copyright © 2004 South-Western
Consumer Income
Inferior Good
Price of IceCream Cone
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
An increase
in income...
Decrease
in demand
D2
0 1
D1
2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream
Cones
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Table 1 Variables That Influence Buyers
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Shifts in the Demand Curve
• Prices of Related Goods
• When a fall in the price of one good reduces the
demand for another good, the two goods are called
substitutes.
• When a fall in the price of one good increases the
demand for another good, the two goods are called
complements.
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