TAILIEUCHUNG - Lecture Basic microeconomics - Chapter 5: Using supply and demand

In the last chapter we introduced you to the concepts of supply and demand. In this chapter we will show you the power of supply and demand, show you how the invisible hand interacts with social and political forces to change the outcome of supply and demand analysis; and discuss how one must adjust supply and demand analysis with other issues kept at the back of one’s mind. | Using Supply and Demand Chapter 5 Laugher Curve Q. How many economists does it take to screw in a lightbulb? A. None. If the government would just leave it alone, it would screw itself in. The Power of Supply and Demand Changes in supply and demand will change equilibrium price and quantity. The Power of Supply and Demand A shift in demand that moves the demand curve to the right causes equilibrium price and quantity to rise. The Power of Supply and Demand A shift in supply that moves the supply curve to the left causes equilibrium price to rise and equilibrium quantity to fall. Price (per cassette) A S0 Quantity of cassettes (per week) $ 0 9 8 10 Excess demand D1 A Shift in Demand Fig. 5-1a, p 105 D0 B (a) A A Shift in Supply Fig. 5-1b, p 105 Price (per cassette) Quantity of cassettes (per week) $ 0 9 8 10 D0 S1 S0 C B Excess demand (b) Six Real World Examples of Supply and Demand changes Supply and demand can shed light on a variety of real-world events: Brazil freeze. Financial assets and the baby boomers. Twenty percent excise tax. Rice in Indonesia. Farm labourers. Christmas toys. Sugar Shock in Brazil The crop-damaging freeze shifted the supply curve to the left. At the original price, quantity demanded exceeded quantity supplied. Price rose until the quantity demanded equaled the quantity supplied. Brazil Freeze Fig. 5-2c, p 107 Demand S0 (c) P1 Qe P0 QD QS S1 Financial Assets and the Baby Boomers Demographic changes among baby boomers moved the demand curve for financial assets to the right. At the original price, quantity demanded exceeded quantity supplied. Price rose until the quantity demanded equaled the quantity supplied. Financial Assets and the Baby Boomers Fig. 5-2f, p 107 S (f) D0 P1 Q1 Q0 P0 D1 QD Housing Market and the Baby Boomers The same phenomenon occurred in the surging demand for housing among this group during the 1980s. Excise Taxes Korean Government imposed a 20 percent luxury tax on imported golf clubs. Excise Taxes A

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