Chapter 2 Principles of Microeconomic | Bài giảng kinh tế học vi mô

Chapter 2 PRINCIPLES OF MICROECONOMICS The Market Forces of Supply and Demand
By: Tran Thi Kieu Minh, VJCC Institute 1 @KieuMinh.MSc Contents 1. Demand 2. Supply 3. Market Mechanism 4.
Consumer Surplus, Producer Surplus and the efficiency of Markets. 5. Government Policies  Reading:
 Textbook: Chapter 4, 6, 7 and 8
 Study Guide: Chapter 4, 6, 7 and * 2 @KieuMinh.MSc Markets
 A group of buyers and sellers of a particular good or service  Can be highly organized  Can be less organized
 Market: any institution, mechanism, or arrangement which facilitates exchange.  Competitive market: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price 3 @KieuMinh.MSc 3 Markets and Competition  Perfect competition  Monopolistic  Obligopoly  Monopoly  Goods offered for Competition  The only seller sale - exactly the in the market same  Sets the price  Buyers and sellers – numerous  No single buyer or seller has any influence over the market price 4 2.1 DEMAND 5 Buyers determine demand... @KieuMinh.MSc Demand
 Demand shows the willingness to pay (WTP) for a good
 WTP = Willing to pay + Be able to pay  Quantity demanded (QD)  Amount of a good
 Buyers are willing and able to purchase at exact Price
 Law of Demand: Other things equal, when the price (P) of the
good rises, quantity demanded (QD) of a good falls
 Relationship between Price of a good (P) and Quantity demanded (QD) can be shown:  Demand schedule - a table:  Demand curve - a graph:  Downward sloping curve  Demand function:  QD= f (P) 6 @KieuMinh.MSc 6
Catherine’s demand schedule and demand curve Price of Ice-Cream Cones 1. A decrease $3.00 in price . . . Price of Quantity of 2.50 Ice-cream cone Cones demanded 2. . . . increases quantity 2.00 $0.00 12 cones of cones demanded. 0.50 10 1.50 1.00 8 1.00 Demand curve 1.50 6 2.00 4 0.50 2.50 2 3.00 0 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones
The demand function of Catherine for ice-cream Cones is:
………………………………………………………………… 7 7
Individual Demand and Market Demand  Individual demand:  Demand of one individual  Market demand
 Sum of all individual demands for a good or service  Market demand curve
 Sum - individual demand curves horizontally Price of ice-cream Catherine Nicholas Market cone $0.00 12 + 7 = 19 0.50 10 6 16 1.00 8 5 13 1.50 6 4 10 2.00 4 3 7 2.50 2 2 4 3.00 0 1 1 8 @KieuMinh.MSc 8
Market demand as the sum of individual demands Catherine’s Nicholas’s + = Market demand demand demand Price of Price of Price of Ice Ice Ice Cream Cream Cream Cones Cones Cones $3.00 D $3.00 $3.00 Catherine D 2.50 Nicholas 2.50 2.50 2.00 2.00 2.00 1.50 1.50 1.50 DMarket 1.00 1.00 1.00 0.50 0.50 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 0 1 2 3 4 5 6 7 0 2 4 6 8 10 12 14 16 18 Quantity of Ice-Cream Cones Quantity of Quantity of Ice-Cream Cones Ice-Cream Cones 9 9 Shifts in Demand  Increase in demand
 Any change that increases the quantity demanded at every price  Demand curve shifts right  Decrease in demand
 Any change that decreases the quantity demanded at every price  Demand curve shifts left
 Variables that can shift the demand curve  Income  Prices of related goods  Tastes  Expectations  Number of buyers 10 @KieuMinh.MSc 10 Shifts in the demand curve P Increase in Demand Decrease in Demand Demand Demand Demand curve, D1 curve, D curve, D 2 3 0 Q 11 @KieuMinh.MSc 11 Changes in Demand  1. Income (I)
 Normal good: other things constant, an increase in income makes increase in demand  Necessary goods  Luxury goods
 Inferior good: Other things constant, an increase in income makes decrease in demand 12 @KieuMinh.MSc 12 Changes in demand
 2. Prices of related goods (Py)  Substitutes - two goods
 An increase in the price of one leads to an increase in the demand for the other  Complements – two goods
 An increase in the price of one leads to a decrease in the demand for the other 13 @KieuMinh.MSc 13 Changes in demand  3. Tastes (T)
 Change in tastes – changes the demand
 4. Expectations - about the future (income, prices) (E)  Affect current demand
 5. Number of buyers – increase (N)  Market demand - increases 14 @KieuMinh.MSc 14
Mankiw (2019), Principles of Microeconomics, 9th edition, p86 15 Quick Quiz Self study:
Study Guide: Chapter 4 (True/False questions: 1 ~ 6) 2.2 SUPPLY Sellers determine supply... 17 @KieuMinh.MSc Supply
 Supply shows the willingness to sell (WTS) of sellers for a
goods (willing and be able to sell)
 Quantity supplied (Qs): Amount of a good that sellers are willing and able to sell
 Law of supply: Other things equal, when the price
(P) of the good rises quantity supplied (Qs) of a good rises
 Relationship between: P and QS can be shown as:
 Supply schedule - a table: shows the quantity supplied at each price
 Supply curve - a graph: Upward sloping curve
 Supply function: QS = g (P) 18 @KieuMinh.MSc 18
Ben’s supply schedule and supply curve Price of Ice-Cream Cones Supply curve Price of Quantity $3.00 Ice-cream ofCones cone supplied 2.50 1. An increase in price . . . $0.00 0 cones 2.00 0.50 0 1.00 1 1.50 2. . . . increases quantity 1.50 2 1.00 of cones supplied. 2.00 3 2.50 4 0.50 3.00 5 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones
The supply function of Ben for ice-cream Cones is:
QS = g (P) =………………………………………………………… 19 19
Individual Supply and Market Supply
 Individual supply: Supply of one seller
 Market supply: Sum of the supplies of all sellers for a good or service  Market supply curve
 Sum - individual supply curves horizontally Price of ice-cream cone Ben Jerry Market $0.00 0 + 0 = 0 0.50 0 0 0 1.00 1 0 1 1.50 2 2 4 2.00 3 4 7 2.50 4 6 10 3.00 5 8 13 20 @KieuMinh.MSc 20