Supply and Demand - ôn tập: Market Equilibrium Effects Analysis | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

SupplyandDemand
1)Foreachofthefollowingchanges,showtheeffectonthedemandcurve,andstate
whatwillhappentomarketequilibriumpriceandquantityintheshortrun.
a.Consumersexpectthatthepriceofthegoodwillbehigherinthefuture.
b.Thepriceofasubstitutegoodrises.
c.Consumerincomesfall,andthegoodisnormal.
d.Consumerincomesfall,andthegoodisinferior.
e.Amedicalreportispublishedshowingthatthisgoodishazardoustoyourhealth. f.Thepriceofthegoodrises. Answer:
a.Demandincreases(now);equilibriumpriceandquantityincrease.
b.Demandincreases;equilibriumpriceandquantityincrease.
c.Demanddecreases;equilibriumpriceandquantityfall.
d.Demandincreases;equilibriumpriceandquantityincrease.
e.Demanddecreases;equilibriumpriceandquantityfall.
f.Thisisamovementalongthedemandcurve,andthequantitydemandedwill decrease.
2)Foreachofthefollowingchanges,showtheeffectonthesupplycurve,andstate
whatwillhappentomarketequilibriumpriceandquantityintheshortrun.
a.Thegovernmentrequirespollutioncontrolfiltersthatraisegoodoncosts.
b.Wagesofworkersinthisindustryfall.
c.Thereisanimprovementintechnology. d.Thepriceofthegoodfalls.
e.Producersexpectthatthepriceofthegoodwillfallinthefuture. Answer:
a.Supplydecreases;equilibriumpricerisesandquantityfalls.
b.Supplyincreases;equilibriumpricefallsandquantityrises.
c.Supplyincreases;equilibriumpricefallsandquantityrises.
d.Thefallinthepriceofgoodsjustcreatesamovementalongthesupplycurve,sothe
supplycurvedoesnotshift.Theshortageoffoodswillhappenasthequantitysuppliedis
lowerthanthequantitydemanded.Duetotheshortage,buyersarewillingtopayhigher
pricestogetthegoods,whichmakesthemarketpriceeventuallyincreaseandthe
marketadjustitselfbacktotheequilibriumstate.
e.Whentheproducersexpectthatthepriceofthegoodwillfallinthefuture,the
companieswillreducetheirproductiontoavoidfutureprofitreduction.Asa
consequence,thesupplycurvewillshifttotheleft.
3)Listthemajornon-pricedeterminantsofdemand. ·
Branding.Sellerscanuseadvertising,productdifferentiation,productquality,
customerservice,andsoforthtocreatesuchstrongbrandimagesthatbuyershavea strongpreferencefortheirgoods. ·
Marketsize.Ifthemarketisexpandingrapidly,customersmaybecompelledto
purchasebasedonotherfactorsthanprice,simplybecausethesupplyofgoodsisnot keepingupwithdemand. ·
Demographics.Achangeintheproportionsofthepopulationindifferentage
rangescanalterdemandinfavorofthosegroupsincreasinginsize(andviceversa).
Thus,anagingpopulationwillincreasethedemandforarthritisdrugs,whileayounger
populationwillincreasethedemandforsportinggoods.
4)Listthemajornon-pricedeterminantsofsupply.
1.Costsoffactorsofproduction-thefirmbuysvariousFoPsthatitusestoproduceits
product.PricesofFoPs(wages)areimportantindeterminingthefirmscostsof
production.Ifafactorpricerises,productioncostsincrease,productionbecomesless
profitableandthefirmproducesless.Thesupplycurveshiftstotheleft.
2.Technology-technologicaladvancementslowersthecostofproduction,thusmaking
productionmoreprofitable.Thesupplycurveshiftstotheright.
3.Pricesofrelatedgoods:competitivesupply-competitivesupplyoftwoormore
productsreferstoproductionofoneortheotherbyafirm;thegoodscompeteforthe
useofthesameresources,andproducingmoreofonemeansproducinglessofthe others.
5)Themarketformilkisinequilibrium.Recenthealthreportsindicatethatcalciumis
absorbedbetterinnaturalformssuchasmilk,andatthesametime,thecostofmilking
equipmentrises.Carefullyanalyzetheprobableeffectsonthemarket.
Inanalyzingtheprobableeffectsonthemarket,weshouldtakeintoconsiderationboth
shortrunandlongrun.Intheshortrun,therewillbenochangeinthepricealthoughthe
productioncostwillbeincreased.Thereasonisthatthemilkproducingcompaniesmay
thinktheincreaseinproductioncostisnotdrasticandstillbewillingtoofferthesame
price.However,inthelongrun,thestorywillbedifferent.Whenthecostofmilking
equipmentrises,thesupplywillgodown,whichleadstoanincreaseintheproduct
price.Asaresult,thedemanddecreases.Atthattime,customersmaywanttofind
substitutegoods.Insomecases,iftheincreaseofpriceisnottoomuchandtheincome
ofconsumerswitnessesanincrease,thedemandformilkmaynotdodownbecause
peoplemaythinktheystillwanttopayforaveryhelpfulproduct.Ontheotherhand,if
thereis“technologicalinnovationsorimprovementsintroducedtoreducetheunitcostof
production”,thepricewouldmovebacktotheequilibrium.
6)Supposethatmacroeconomicforecasterspredictthattheeconomywillbeexpanding
inthenearfuture.Howmightmanagersusethisinformation?
Indoingbusiness,themanagerscanbaseonthesituationoftheoveralleconomyto
makestrategicdecisions.Intheeventthatmacroeconomicforecasterspredictthatthe
economywillbeexpandinginthenearfuture,themanagersshouldinterpretthispiece
ofinformationcarefully.Firstofall,iftheeconomyisexpectedtoexpandinthefuture,
thecompanycananticipatethattheincomeofconsumerswillincrease.Thiswill
definitelyleadtotheincreaseinthedemandforgoods.Asaresult,companiesshould
makesomenecessarychangesinproduction.Specifically,thesupplyofbothsuperior
andnormalgoodswillmostlikelyincreasebecausetheconsumershavemoremoney
andcanaffordtobuyluxuriousthings.Iftheincomeelasticityislargerthan1,the
companiesshouldpaymoreattentiontothesuperiorgoods(Keat&Young,2009).For
example,inautomobileindustry,whentheeconomyhasasignalofexpanding,therewill
bemorepeoplewhowanttobuynewcars.Consequently,managerscanusethis
informationtoincreaseinventory.Insomecases,somewell-informedcompaniesmay
usethisinformationforfuturecontracts,ofwhichthepurposeispricehedgingbecause oftheshortageofmaterialsupply.