微觀經(jīng)濟(jì)學(xué)第六版課后答案 微觀經(jīng)濟(jì)學(xué) 英文原版 CH02PINDYCK課件

Chapter2TheBasicsofSupplyandDemand?2005PearsonEducation,Inc.1Chapter2Chapter2TheBasicsofSupply?IntroductionWhataresupplyanddemand?Whatisthemarketmechanism?Whataretheeffectsofchangesinmarketequilibrium?Whatareelasticitiesofsupplyanddemand??2005PearsonEducation,Inc.2Chapter2IntroductionWhataresupplyanTopicstoBeDiscussedHowdoshort-runandlong-runelasticitiesdiffer?Howdoweunderstandandpredicttheeffectsofchangingmarketconditions?Whataretheeffectsofgovernmentintervention–pricecontrols??2005PearsonEducation,Inc.3Chapter2TopicstoBeDiscussedHowdoSupplyandDemandSupplyanddemandanalysiscan:HelpusunderstandandpredicthowrealworldeconomicconditionsaffectmarketpriceandproductionAnalyzetheimpactofgovernmentpricecontrols,minimumwages,pricesupports,andproductionincentivesontheeconomyDeterminehowtaxes,subsidies,tariffsandimportquotasaffectconsumersandproducers?2005PearsonEducation,Inc.4Chapter2SupplyandDemandSupplyanddeSupplyandDemandTheSupplyCurveTherelationshipbetweenthequantityofagoodthatproducersarewillingtosellandthepriceofthegoodMeasuresquantityonthex-axisandpriceonthey-axis?2005PearsonEducation,Inc.5Chapter2SupplyandDemandTheSupplyCuTheSupplyCurveSThesupplycurveslopesupward,demonstratingthatathigherpricesfirmswillincreaseoutputTheSupplyCurve,GraphicallyDepictedQuantity

Price($perunit)

P1Q1P2Q2?2005PearsonEducation,Inc.6Chapter2TheSupplyCurveSThesupplycuTheSupplyCurveOtherVariablesAffectingSupplyCostsofProductionLaborCapitalRawMaterialsLowercostsofproductionallowafirmtoproducemoreateachpriceandviceversa?2005PearsonEducation,Inc.7Chapter2TheSupplyCurveOtherVariableChangeinSupplyThecostofrawmaterialsfallsProducedQ1atP1andQ0atP2NowproduceQ2atP1andQ1atP2SupplycurveshiftsrighttoS’PSQP1P2Q1Q0S’Q2?2005PearsonEducation,Inc.8Chapter2ChangeinSupplyThecostofraTheSupplyCurveChangeinQuantitySuppliedMovementalongthecurvecausedbyachangeinpriceChangeinSupplyShiftofthecurvecausedbyachangeinsomethingotherthanthepriceofthegoodChangeincostsofproduction?2005PearsonEducation,Inc.9Chapter2TheSupplyCurveChangeinQuanSupplyandDemandTheDemandCurveTherelationshipbetweenthequantityofagoodthatconsumersarewillingtobuyandthepriceofthegoodMeasuresquantityonthex-axisandpriceonthey-axis?2005PearsonEducation,Inc.10Chapter2SupplyandDemandTheDemandCuTheDemandCurveDThedemandcurveslopesdownward,demonstratingthatconsumersarewillingtobuymoreatalowerpriceastheproductbecomesrelativelycheaper.Quantity

Price($perunit)P2Q1P1Q2?2005PearsonEducation,Inc.11Chapter2TheDemandCurveDThedemandcuTheDemandCurveOtherVariablesAffectingDemandIncomeIncreasesinincomeallowconsumerstopurchasemoreatallpricesConsumerTastesPriceofRelatedGoodsSubstitutesComplements?2005PearsonEducation,Inc.12Chapter2TheDemandCurveOtherVariableDPQD’Q1P2Q0P1Q2ChangeinDemandIncomeIncreasesPurchasedQ0,atP2andQ1atP1NowpurchasedQ1atP2andQ2atP1SameforallpricesDemandcurveshiftsright?2005PearsonEducation,Inc.13Chapter2DPQD’Q1P2Q0P1Q2ChangeinDemanTheDemandCurveChangesinquantitydemandedMovementsalongthedemandcurvecausedbyachangeinpriceChangesindemandAshiftoftheentiredemandcurvecausedbysomethingotherthanpriceIncomePreferences?2005PearsonEducation,Inc.14Chapter2TheDemandCurveChangesinquaTheMarketMechanismThemarketmechanismisthetendencyinafreemarketforpricetochangeuntilthemarketclearsMarketsclearwhenquantitydemandedequalsquantitysuppliedattheprevailingpriceMarketclearingprice–priceatwhichmarketsclear?2005PearsonEducation,Inc.15Chapter2TheMarketMechanismThemarketTheMarketMechanismDSThecurvesintersectatequilibrium,ormarket-clearing,price.QuantitydemandedequalsquantitysuppliedatP0P0Q0Quantity

Price($perunit)?2005PearsonEducation,Inc.16Chapter2TheMarketMechanismDSThecurvTheMarketMechanismInequilibriumThereisnoshortageorexcessdemandThereisnosurplusorexcesssupplyQuantitysuppliedequalsquantitydemandedAnyonewhowantstobuyatthecurrentpricecanandallproducerswhowanttosellatthatpricecan?2005PearsonEducation,Inc.17Chapter2TheMarketMechanismInequilibMarketSurplus1ThemarketpriceisaboveequilibriumThereisexcesssupply-surplusDownwardpressureonpriceQuantitydemandedincreasesandquantitysupplieddecreasesThemarketadjustsuntilnewequilibriumisreached?2005PearsonEducation,Inc.18Chapter2MarketSurplus1ThemarketpricTheMarketMechanismDSP0Q0AtP1,priceisabovethemarketclearingpriceQs>QDPricefallstothemarket-clearingpriceMarketadjuststoequilibriumP1SurplusQuantity

Price($perunit)QSQD?2005PearsonEducation,Inc.19Chapter2TheMarketMechanismDSP0Q0AtPTheMarketMechanismThemarketpriceisbelowequilibrium:Thereisexcessdemand-shortageUpwardpressureonpricesQuantitydemandeddecreasesandquantitysuppliedincreasesThemarketadjustsuntilthenewequilibriumisreached?2005PearsonEducation,Inc.20Chapter2TheMarketMechanismThemarketTheMarketMechanismDSQSQDP2Quantity

Price($perunit)AtP2,priceisbelowthemarketclearingpriceQD>QSPricerisestothemarket-clearingpriceMarketadjuststoequilibriumQ3P3Shortage?2005PearsonEducation,Inc.21Chapter2TheMarketMechanismDSQSQDP2QuTheMarketMechanismSupplyanddemandinteracttodeterminethemarket-clearingpriceWhennotinequilibrium,themarketwilladjusttoalleviateashortageorsurplusandreturnthemarkettoequilibriumMarketsmustbecompetitiveforthemechanismtobeefficient?2005PearsonEducation,Inc.22Chapter2TheMarketMechanismSupplyandChangesinMarketEquilibriumEquilibriumpricesaredeterminedbytherelativelevelofsupplyanddemandChangesinsupplyand/ordemandwillcausechangeintheequilibriumpriceand/orquantityinafreemarket?2005PearsonEducation,Inc.23Chapter2ChangesinMarketEquilibriumES’ChangesinMarketEquilibriumRawmaterialpricesfallSshiftstoS’SurplusatP1betweenQ1,Q2PriceadjuststoequilibriumatP3,Q3

PQSDP3Q3Q1P1Q2?2005PearsonEducation,Inc.24Chapter2S’ChangesinMarketEquilibriuD’SDQ3P3ChangesinMarketEquilibriumIncomeIncreasesDemandincreasestoD’ShortageatP1ofQ1toQ2EquilibriumatP3andQ3

PQQ1P1Q2?2005PearsonEducation,Inc.25Chapter2D’SDQ3P3ChangesinMarketEquiD’S’ChangesinMarketEquilibriumIncomeincreasesandrawmaterialpricesfallQuantityincreasesIftheincreaseinDisgreaterthantheincreaseinSpricealsoincreasesPQSP2Q2DP1Q1?2005PearsonEducation,Inc.26Chapter2D’S’ChangesinMarketEquilibrShiftsinSupplyandDemandWhensupplyanddemandchangesimultaneously,theimpactontheequilibriumpriceandquantityisdeterminedby:TherelativesizeanddirectionofthechangeTheshapeofthesupplyanddemandmodels?2005PearsonEducation,Inc.27Chapter2ShiftsinSupplyandDemandWheThePriceofaCollegeEducationTherealpriceofacollegeeducationrose55percentfrom1970to2002Increasesincostsofmodernclassroomsandwagesincreasedcostsofproduction–decreaseinsupplyDuetoalargerpercentageofhighschoolgraduatesattendingcollege,demandincreased?2005PearsonEducation,Inc.28Chapter2ThePriceofaCollegeEducatiMarketforaCollegeEducationQ(millionsenrolled))

P(annualcostin1970dollars)

D1970S1970S2002D2002$3,91713.2Newequilibriumwasreachedat$4,573andaquantityof12.3millionstudents$2,5308.6?2005PearsonEducation,Inc.29Chapter2MarketforaCollegeEducationTheLong-RunBehavior

ofNaturalResourcePricesConsumptionofcopperhasincreasedaboutahundredfoldfrom1880through2002ThelongtermrealpriceforcopperhasremainedrelativelyconstantIncreaseddemandasworldeconomygrewDecreasedproductioncostsincreasedsupply?2005PearsonEducation,Inc.30Chapter2TheLong-RunBehavior

ofNaturS2002D2002D1900S1900S1950D1950Long-RunPathofPriceandConsumptionResourceMarketEquilibriumQuantity

Price?2005PearsonEducation,Inc.31Chapter2S2002D2002D1900S1900S1950D1950ResourceMarketConclusionDecreasesinthecostsofproductionhaveincreasedthesupplybymorethanenoughtooffsettheincreaseindemand?2005PearsonEducation,Inc.32Chapter2ResourceMarketConclusion?2005ElasticitiesofSupplyandDemandNotonlyareweconcernedwithwhatdirectionpriceandquantitywillmovewhenthemarketchanges,butweareconcernedabouthowmuchtheychangeElasticitygivesawaytomeasurebyhowmuchavariablewillchangewiththechangeinanothervariableSpecifically,itgivesthepercentagechangeinonevariableresultingfromaonepercentchangeinanother?2005PearsonEducation,Inc.33Chapter2ElasticitiesofSupplyandDemPriceElasticityofDemandMeasuresthesensitivityofquantitydemandedtopricechangesItmeasuresthepercentagechangeinthequantitydemandedofagoodthatresultsfromaonepercentchangeinprice?2005PearsonEducation,Inc.34Chapter2PriceElasticityofDemandMeasPriceElasticityofDemandThepercentagechangeinavariableistheabsolutechangeinthevariabledividedbytheoriginallevelofthevariableTherefore,elasticitycanalsobewrittenas:?2005PearsonEducation,Inc.35Chapter2PriceElasticityofDemandThePriceElasticityofDemandUsuallyanegativenumberAspriceincreases,quantitydecreasesAspricedecreases,quantityincreasesWhen|EP|>1,thegoodispriceelastic|%Q|>|%P|When|EP|<1,thegoodispriceinelastic|%Q|<|%P|?2005PearsonEducation,Inc.36Chapter2PriceElasticityofDemandUsuaPriceElasticityofDemandTheprimarydeterminantofpriceelasticityofdemandistheavailabilityofsubstitutesManysubstitutes,demandispriceelasticCaneasilymovetoanothergoodwithpriceincreasesFewsubstitutes,demandispriceinelastic?2005PearsonEducation,Inc.37Chapter2PriceElasticityofDemandThePriceElasticityofDemandLookingatalineardemandcurve,aswemovealongthecurveQ/Pisconstant,butPandQwillchangePriceelasticityofdemandmustthereforebemeasuredataparticularpointonthedemandcurveElasticitywillchangealongthedemandcurveinaparticularway?2005PearsonEducation,Inc.38Chapter2PriceElasticityofDemandLookPriceElasticityofDemandGivenalineardemandcurveElasticitydependsonslopeandonthevaluesofPandQThetopportionofdemandcurveiselasticPriceishighandquantitysmallThebottomportionofdemandcurveisinelasticPriceislowandquantityhigh?2005PearsonEducation,Inc.39Chapter2PriceElasticityofDemandGivePriceElasticityofDemandQPrice4824Ep=-1Ep=0EP=-ElasticInelasticDemandCurveQ=8–2P?2005PearsonEducation,Inc.40Chapter2PriceElasticityofDemandQPriPriceElasticityofDemandThesteeperthedemandcurve,themoreinelasticthedemandforthegoodbecomesTheflatterthedemandcurve,themoreelasticthethedemandforthegoodbecomesTwoextremecasesofdemandcurvesCompletelyinelasticdemand–verticalInfinitelyelasticdemand–horizontal?2005PearsonEducation,Inc.41Chapter2PriceElasticityofDemandTheInfinitelyElasticDemandDP*Quantity

PriceEP=?2005PearsonEducation,Inc.42Chapter2InfinitelyElasticDemandDP*QuCompletelyInelasticDemandQuantity

PriceQ*DEP=0?2005PearsonEducation,Inc.43Chapter2CompletelyInelasticDemandQuaOtherDemandElasticitiesIncomeElasticityofDemandMeasureshowmuchquantitydemandedchangeswithachangeinincome?2005PearsonEducation,Inc.44Chapter2OtherDemandElasticitiesIncomOtherDemandElasticitiesCross-PriceElasticityofDemandMeasuresthepercentagechangeinthequantitydemandedofonegoodthatresultsfromaonepercentchangeinthepriceofanothergood?2005PearsonEducation,Inc.45Chapter2OtherDemandElasticitiesCrossOtherDemandElasticitiesComplements:CarsandTiresCross-priceelasticityofdemandisnegativePriceofcarsincreases,quantitydemandedoftiresdecreasesSubstitutes:ButterandMargarineCross-priceelasticityofdemandispositivePriceofbutterincreases,quantityofmargarinedemandedincreases?2005PearsonEducation,Inc.46Chapter2OtherDemandElasticitiesComplPriceElasticityofSupplyMeasuresthesensitivityofquantitysuppliedgivenachangeinpriceMeasuresthepercentagechangeinquantitysuppliedresultingfroma1percentchangeinprice?2005PearsonEducation,Inc.47Chapter2PriceElasticityofSupplyMeas

Pointvs.ArcElasticitiesPointelasticityofdemandPriceelasticityofdemandataparticularpointonthedemandcurveArcelasticityofdemandPriceelasticityofdemandcalculatedoverarangeofprices?2005PearsonEducation,Inc.48Chapter2

Pointvs.ArcElasticitiesPoiElasticity:AnApplicationDuringthe1980’sand1990’s,themarketforwheatwentthroughchangesthathadgreatimplicationsforAmericanfarmersandUSagriculturalpolicyUsingthesupplyanddemandcurvesforwheat,wecananalyzewhatoccurredinthismarket?2005PearsonEducation,Inc.49Chapter2Elasticity:AnApplicationDuriElasticity:AnApplicationSupply:QS=1900+24PDemand:QD=3550–266P?2005PearsonEducation,Inc.50Chapter2Elasticity:AnApplicationSuppElasticity:AnApplicationQD=QS1800+240P=3550–266P506P=1750P=$3.46perbushelQ=1800+(240)(3.46)=2630millionbushels?2005PearsonEducation,Inc.51Chapter2Elasticity:AnApplicationQD=Elasticity:AnApplicationWecanfindtheelasticitiesofdemandandsupplyatthesepoints?2005PearsonEducation,Inc.52Chapter2Elasticity:AnApplicationWecElasticity:AnApplicationAssumethepriceofwheatis$4.00/bushelduetodecreaseinsupply?2005PearsonEducation,Inc.53Chapter2Elasticity:AnApplicationAssuElasticity:AnApplicationIn2002,thesupplyanddemandforwheatwere:Supply:QS=1439+267PDemand:QD=2809–226P?2005PearsonEducation,Inc.54Chapter2Elasticity:AnApplicationIn2Elasticity:AnApplicationQD=QS2809-226P=1439+267PP=$2.78perbushelQ=2809-(226)(2.78)=2181millionbushelsPriceofwheatfellinnominalterms.?2005PearsonEducation,Inc.55Chapter2Elasticity:AnApplicationQD=Short-RunVersusLong-RunElasticityPriceelasticityvarieswiththeamountoftimeconsumershavetorespondtoapriceShort-rundemandandsupplycurvesoftenlookverydifferentfromtheirlong-runcounterparts?2005PearsonEducation,Inc.56Chapter2Short-RunVersusLong-RunElasShort-RunVersusLong-RunElasticityDemandIngeneral,demandismuchmorepriceelasticinthelongrunConsumerstaketimetoadjustconsumptionhabitsDemandmightbelinkedtoanothergoodthatchangesslowlyMoresubstitutesareusuallyavailableinthelongrun?2005PearsonEducation,Inc.57Chapter2Short-RunVersusLong-RunElasGasoline:Short-RunandLong-RunDemandCurvesDSRDLRPeoplecannoteasilyadjustconsumptionintheshortrun.Inthelongrun,peopletendtodrivesmallerandmorefuelefficientcars.QuantityofGas

Price?2005PearsonEducation,Inc.58Chapter2Gasoline:Short-RunandLong-RShort-RunVersusLong-RunElasticityDemandandDurabilityForsomedurablegoods,demandismoreelasticintheshortrunIfgoodsaredurable,thenwhenpriceincreases,consumerschoosetoholdontothegoodinsteadofreplacingitButinlongrun,olderdurablegoodswillhavetobereplaced?2005PearsonEducation,Inc.59Chapter2Short-RunVersusLong-RunElasDSRDLRInitially,peoplemayputoffimmediatecarpurchaseInlongrun,oldercarsmustbereplacedCars:Short-RunandLong-RunDemandCurvesQuantityofCars

Price?2005PearsonEducation,Inc.60Chapter2DSRDLRInitially,peoplemaypShort-RunVersusLong-RunElasticityIncomeelasticityalsovarieswiththeamountoftimeconsumershavetorespondtoanincomechangeFormostgoodsandservices,incomeelasticityislargerinthelongrunWhenincomechanges,ittakestimetoadjustspending?2005PearsonEducation,Inc.61Chapter2Short-RunVersusLong-RunElasShort-RunVersusLong-RunElasticityIncomeelasticityofdurablegoodsIncomeelasticityislessinthelongrunthanintheshortrunIncreasesinincomemeanconsumerswillwanttoholdmorecarsOnceoldercarsarereplaced,purchaseswillonlybetoreplaceoldcarsLesspurchasesfromincomeincreaseinlongrunthaninshortrun?2005PearsonEducation,Inc.62Chapter2Short-RunVersusLong-RunElasDemandforGasoline?2005PearsonEducation,Inc.63Chapter2DemandforGasoline?2005PearsDemandforAutomobiles?2005PearsonEducation,Inc.64Chapter2DemandforAutomobiles?2005PeShort-RunVersusLong-RunElasticityMostgoodsandservices:Long-runpriceelasticityofsupplyisgreaterthanshort-runpriceelasticityofsupplyOtherGoods(durables,recyclables):Long-runpriceelasticityofsupplyislessthanshort-runpriceelasticityofsupply?2005PearsonEducation,Inc.65Chapter2Short-RunVersusLong-RunElasSSRQuantityPrimaryCopper

PriceShort-RunVersusLong-RunElasticitySLRDuetolimitedcapacity,firmsarelimitedbyoutputconstraintsintheshortrun.Inthelongrun,theycanexpand.?2005PearsonEducation,Inc.66Chapter2SSRQuantityPrimaryCopperPriSSRQuantitySecondaryCopper

PriceShort-RunVersusLong-RunElasticitySLRPriceincreasesprovideanincentivetoconvertscrapcopperintonewsupply.Inthelongrun,thisstockofscrapcopperbeginstofall.?2005PearsonEducation,Inc.67Chapter2SSRQuantitySecondaryCopperPSupplyofCopper?2005PearsonEducation,Inc.68Chapter2SupplyofCopper?2005PearsonShort-Runvs.Long-RunElasticity–AnApplicationWhyarecoffeepricesveryvolatile?Mostoftheworld’scoffeeisproducedinBrazilManychangingweatherconditionsaffectthecropofcoffee,therebyaffectingpricePricefollowingbadweatherconditionsisusuallyshort-livedInlongrun,pricescomebacktooriginallevels,allelseequal?2005PearsonEducation,Inc.69Chapter2Short-Runvs.Long-RunElasticPriceofBrazilianCoffee?2005PearsonEducation,Inc.70Chapter2PriceofBrazilianCoffee?2005Short-Runvs.Long-RunElasticity–AnApplicationDemandandsupplyaremoreelasticinthelongrunIntheshortrun,supplyiscompletelyinelasticWeathermaydestroypartofthefixedsupply,decreasingsupplyDemandisrelativelyinelasticaswellPriceincreasessignificantly?2005PearsonEducation,Inc.71Chapter2Short-Runvs.Long-RunElasticDP0SQ0Quantity

PriceAfreezeordroughtdecreasesthesupplyofcoffeeS’Q1AnApplication-CoffeePriceincreasessignificantlyduetoinelasticsupplyanddemandP1?2005PearsonEducation,Inc.72Chapter2DP0SQ0QuantityPriceAfreezeoS’DSP0Q0P2Q2Intermediate-Run1)Supplyanddemandaremoreelastic2)PricefallsbacktoP2.AnApplication-CoffeeQuantity

Price?2005PearsonEducation,Inc.73Chapter2S’DSP0Q0P2Q2Intermediate-RunAnSP0Q0Long-Run1)Supplyisextremelyelastic2)PricefallsbacktoP0.3)QuantitybacktoQ0.AnApplication-CoffeeQuantity

PriceD?2005PearsonEducation,Inc.74Chapter2SP0Q0Long-RunAnApplication-PredictingtheEffectsofChangingMarketConditionsSupplyanddemandanalysiscanbeusedtopredicttheeffectsofchangingmarketconditionsLineardemandandsupplymustbefittomarketdataGivenequilibriumpriceandquantityalongwithelasticitiesofsupplyanddemand,wecancalculatethecurvesthatfittheinformationWecanthencalculatechangesinthemarket?2005PearsonEducation,Inc.75Chapter2PredictingtheEffectsofChanPredictingtheEffectsofChangingMarketConditionsWeknowEquilibriumPrice,P*EquilibriumQuantity,Q*Priceelasticityofsupply,ESPriceelasticityofdemand,ED?2005PearsonEducation,Inc.76Chapter2PredictingtheEffectsofChanPredictingtheEffectsofChangingMarketConditionsLet’sbeginwiththeequationsforsupply,demand,elasticity:Demand:Q=a–bPSupply:Q=c+dPElasticity:(P/Q)(Q/P)Wemustcalculatenumbersfora,b,c,andd.?2005PearsonEducation,Inc.77Chapter2PredictingtheEffectsofChanPredictingtheEffectsofChangingMarketConditionsTheslopeofthedemandcurveaboveequalsQ/Pwhichequals-bTheslopeofthesupplycurveaboveequalsQ/PwhichequalsdDemand:ED=-b(P*/Q*)Supply:ES=d(P*/Q*)?2005PearsonEducation,Inc.78Chapter2PredictingtheEffectsofChanDemand:Q=a-bPa/bSupply:Q=c+dP-c/dP*Q*ED=-bP*/Q*ES=dP*/Q*PredictingtheEffectsofChangingMarketConditionsQuantity

Price?2005PearsonEducation,Inc.79Chapter2Demand:Q=a-bPa/bSupply:QPredictingtheEffectsofChangingMarketConditionsUsingP*,Q*andtheelasticities,wecansolveforbandcfromsupplyES=d(P*/Q*)1.6=d(0.75/7.5)=0.1dd=16Q=c+dP7.5=c+(16)(0.75)=c+12c=-4.5?2005PearsonEducation,Inc.80Chapter2PredictingtheEffectsofChanPredictingtheEffectsofChangingMarketConditionsUsingP*,Q*andtheelasticities,wecansolveforaandbfromdemandED=–b(P*/Q*)-0.8=-b(0.75/7.5)=–0.1bb=8Q=a–bP7.5=a–(8)(0.75)=a–6a=13.5?2005PearsonEducation,Inc.81Chapter2PredictingtheEffectsofChanPredictingtheEffectsofChangingMarketConditionsWenowhaveequationsforsupplyanddemandSupply:Q=–4.5+16PDemand:Q=13.5–8PSettingthemequalwillgiveusequilibriumpriceandquantitywithwhichwebegan?2005PearsonEducation,Inc.82Chapter2PredictingtheEffectsofChanSupply:QS=-4.5+16P-c/dDemand:QD=13.5-8Pa/b.757.5PredictingtheEffectsofChangingMarketConditionsMmt/yr

Price?2005PearsonEducation,Inc.83Chapter2Supply:QS=-4.5+16P-c/dDemPredictingtheEffectsofChangingMarketConditionsWehavewrittensupplyanddemandsothattheyonlydependuponpriceDemandcouldalsodependuponothervariablessuchasincomeDemandwouldthenbewrittenas:?2005PearsonEducation,Inc.84Chapter2PredictingtheEffectsofChanPredictingtheEffectsofChangingMarketConditionsWeknowthefollowinginformationregardingthecopperindustry:I=1.0P*=0.75Q*=7.5b=8Incomeelasticity:EI=1.3?2005PearsonEducation,Inc.85Chapter2PredictingtheEffectsofChanPredictingtheEffectsofChangingMarketConditionsUsingtheelasticityofincomeformula,wecansolveforfEI=(I/Q)(Q/I)1.3=(1.0/7.5)(f)f=9.75Substitutingbackintodemandequationgivesa=3.75?2005PearsonEducation,Inc.86Chapter2PredictingtheEffectsofChanDecliningDemandandtheBehaviorofCopperPricesCopperhasgonethroughdifficultmarketchangesleadingthesignificantlyreducedpricesmostfromdecreaseddemandfromAdecreaseinthegrowthrateofpowergenerationThedevelopmentofsubstitutes:fiberopticsandaluminum?2005PearsonEducation,Inc.87Chapter2DecliningDemandandtheBehavRealversusNominal

PricesofCopper1965-2002?2005PearsonEducation,Inc.88Chapter2RealversusNominal

PricesofDecliningDemandandtheBehaviorofCopperPricesGivenproducers’concernsaboutfurtherdeclinesindemand,wecancalculatebyhowmuchpriceswillfallwithfuturedeclinesindemandAssumethatdemandwillfallby20%Whatistheresultingdecreaseinprice?Demandcurvewillshifttoleftby20%?2005PearsonEducation,Inc.89Chapter2DecliningDemandandtheBehavDecliningDemandandtheBehaviorofCopperPricesWewanttoconsider80%ofthepastdemand Q=(0.80)(13.5-8P)Q=10.8-6.4PRecalltheequationforsupply:Q=-4.5+16P?2005PearsonEducation,Inc.90Chapter2DecliningDemandandtheBehavDecliningDemandandtheBehaviorofCopperPricesSettingsupplyequaltodemand:-4.5+16P=10.8-6.4P-16P+6.4P=10.8+4.5P=15.3/22.4P=68.3cents/poundAdeclineindemandof20%willleadtoadropinpriceabout7%?2005PearsonEducation,Inc.91Chapter2DecliningDemandandtheBehavEffectsofPriceControlsMarketsarerarelyfreeofgovernmentinterventionImposedtaxesandgrantedsubsidiesPricecontrolsPricecontrolsusuallyholdthepriceaboveorbelowtheequilibriumpriceExcessdemand–shortageExcesssupply–surplus?2005PearsonEducation,Inc.92Chapter2EffectsofPriceControlsMarkeDEffectsofPriceControlsQuantityPriceP0Q0SPmaxPriceisregulatedtobenohigherthanPmaxQuantitysuppliedfallsandquantitydemandedincreasesAshortageresults

QSQDShortage?2005PearsonEducation,Inc.93Chapter2DEffectsofPriceControlsQuanEffectsofPriceControlsExcessdemandsometimestakestheformofqueuesLinesatgasstationsduring1974shortageSometimesgetcurtailmentsandsupplyrationingNaturalgasshortageofthemid’70’sProducerstypicallylose,butsomeconsumersgain.Someconsumerslose.?2005PearsonEducation,Inc.94Chapter2EffectsofPriceControlsExcesPriceControlsand

NaturalGasShortagesIn1954,thefederalgovernmentbeganregulatingthewellheadpriceofnaturalgasIn1962,theceilingpricesthatwereimposedbecamebindingandshortagesresulted?2005PearsonEducation,Inc.95Chapter2PriceControlsand

NaturalGasPriceControlsand

NaturalGasShortagesPricecontrolscreatedanexcessdemandof7trillioncubicfeetPriceregulationwasamajorcomponentofUSenergypolicyinthe1960sand1970s,anditcontinuedtoinfluencethenaturalgasmarketsinthe1980s?2005PearsonEducation,Inc.96Chapter2PriceControlsand

NaturalGasChapter2TheBasicsofSupplyandDemand?2005PearsonEducation,Inc.97Chapter2Chapter2TheBasicsofSupply?IntroductionWhataresupplyanddemand?Whatisthemarketmechanism?Whataretheeffectsofchangesinmarketequilibrium?Whatareelasticities