kuliah 3 ekonomi perpajakan

7/30/2019 Kuliah 3 Ekonomi Perpajakan

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Prepared by: Fernando Quijano

and Yvonn Quijano

2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair

Demand, Supply,

and Market Equilibrium


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2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair 2 of 48

Firms and Households:

The Basic Decision-Making Units

A f i rmis an organization that transforms resources(inputs) into products (outputs). Firms are the

primary producing units in a market economy.

An entrepreneur is a person who organizes,

manages, and assumes the risks of a firm, taking a

new idea or a new product and turning it into a

successful business.

Households are the consuming units in aneconomy.


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quilibrium


Input Markets and Output Markets:

The Circular Flow

Product or output markets are the markets in

which goods and services are exchanged.

Input marketsare the markets in which resources

labor, capital, and landused to produce products,are exchanged.


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quilibrium



The Circular Flow

Inputorfactormarkets

The labo r market, in which households supply work forwages to firms that demand labor.

The capital market, in which households supply theirsavings, for interest or for claims to future profits, tofirms that demand funds to buy capital goods.

The land market, in which households supply land orother real property in exchange for rent.


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quilibrium



The Circular Flow

The c i rcular f low of economic act iv i ty

shows how firms and households interact in

input and output markets.


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quilibrium



The Circular Flow

Goods and services flow

clockwise. Firms provide

goods and services;

households supply laborservices.

Payments (usually money)

flow in the opposite

direction (counterclockwise)as the flow of labor

services, goods, and

services.


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quilibrium


Demand in Product/Output Markets

The pr ice of the produc tin question.

The i ncomeavailable to the household.

The households amount ofaccumulated w ealth.

The pr ices o f other products.

The households tastes and p references.

The households expectat ionsabout future.

A households decision about the quantity of aparticular output to demand depends on:


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quilibrium


Demand in Product/Output Markets

Quant i ty demanded is the amount

(number of units) of a product that a

household wishes to purchase in a given

time period.


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Changes in Quantity Demanded

Versus Changes in Demand

The most important relationship in individualmarkets is that between market price andquantity demanded.

For this reason, we use the ceter is par ibusdevice, to examine the relationship betweenthe quantity demanded of a good per period oftime and the price of that good, while holding

income, wealth, other prices, tastes, andexpectations constant.


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Changes in Quantity Demanded

Versus Changes in Demand

Changes in price affect the quantity demandedper period.

Changes in income, wealth, other prices,

tastes, or expectations affect demand.


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Price and Quantity Demanded:

The Law of Demand

A demand schedule

is a table showing

how much of a given

product a householdwould be willing to

buy at different prices.

Demand curves areusually derived from

demand schedules.

PRICE

(PER

CALL)

QUANTITY

DEMANDED

(CALLS PER

MONTH)

$ 0 30

0,50 25

3,50 77,00 3

10,00 1

15,00 0

ANNA'S DEMAND

SCHEDULE FOR

TELEPHONE CALLS


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The Law of Demand

The demand curveis

a graph illustrating

how much of a given

product a household

would be willing to buy

at different prices.

PRICE

(PER

CALL)

QUANTITY

DEMANDED

(CALLS PER

MONTH)

$ 0 30

0.50 25

3.50 7

7.00 3

10.00 1

15.00 0

ANNA'S DEMAND

SCHEDULE FOR

TELEPHONE CALLS


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The Law of Demand

The law of demand

states that there is a

negative, or inverse,

relationship betweenprice and the quantity

of a good demanded

and its price.

This means that

demand curves slope

downward.


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Other Determinants

of Household Demand

i . In come and Wealth

Incomeis the sum of all households wages,salaries, profits, interest payments, rents, and

other forms of earnings in a given period oftime. It is a f lowmeasure.

Wealth, or net worth, is the total value of

what a household owns minus what it owes.It is a s tockmeasure. It is measured at apoint in time.


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Other Determinants

of Household Demand

Normal Goodsare goods for which demand

goes up when income is higher and for which

demand goes down when income is lower.

(movie tickets, shirts) Infer ior Goodsare goods for which demand

falls when income rises. (low quality of meat,

public transportation)


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Other Determinants

of Household Demand

i i . Pr ices o f o ther goods and serv ices

Subst i tutesare goods that can serve asreplacements for one another; when the price

of one increases, demand for the other goesup. Perfect subst i tutes are identicalproducts.

Complementsare goods that go together;

a decrease in the price of one results in anincrease in demand for the other, and viceversa.


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Shift of Demand Versus

Movement Along a Demand Curve

A change in demandis not

the same as a change in

quant i ty demanded.

A higher price causes lowerquantity demanded and a

move along the demand

curve DA.

Changes in determinants ofdemand, other than price,

cause a change in demand,

or a shi f t of the entire

demand curve, from DA to DB.


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A Change in Demand Versus

a Change in Quantity Demanded

To summarize:

Change in price of a good or service

leads to

Change in quantity demanded

(Movement along the curve).

Change in income, preferences, or

prices of other goods or servicesleads to

Change in demand

(Shift of curve).


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The Impact of a Change in Income

Higher income

decreases the demand

for an infer iorgood

Higher income

increases the demand

for a normalgood


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The Impact of a Change

in the Price of Related Goods

Price of hamburger rises

Demand for

complement

good

(ketchup)

shifts left

Demand for

substitute

good

(chicken)

shifts right

Quantity of hamburger

demanded per month falls


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From Household

Demand to Market Demand

Demand for a good or service can be defined

for an ind iv idual household, or for a group of

households that make up a market.

Market demandis the sum of all the quantitiesof a good or service demanded per period by all

the households buying in the market for that

good or service.


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From Household

Demand to Market Demand

Assuming there are only two households in the

market, market demand is derived as follows:


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Supply in Product/Output Markets

Supply decisions depend on profit potential.

Prof i t is the difference between revenues

and costs.


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A supp ly scheduleis a table

showing how much of a product

firms will supply at differentprices.

Quant i ty suppl ied representsthe number of units of a product

that a firm would be willing and

able to offer for sale at a

particular price during a giventime period.PRICE

(PER

BUSHEL)

QUANTITY

SUPPLIED(THOUSANDS

OF BUSHELS

PER YEAR)

$ 1,20 0

1,75 10

2,25 203,00 30

4,00 45

5,00 45

AN INDIVIDUAL

FARMER'S SUPPLY

SCHEDULE FOR

SOYBEANS

Supply in Product/Output Markets


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Price and Quantity Supplied:

The Law of Supply

A supp ly curveis a graph illustrating how much of aproduct a firm will supply per period of time at different

prices.

0

1

2

3

4

5

6

0 10 20 30 40 50Thousands of bushels of soybeans

produced per year

Price

ofsoy

beans

perbushel($)

PRICE

(PERBUSHEL)

QUANTITY

SUPPLIED

(THOUSANDS

OF BUSHELSPER YEAR)

$ 2 0

1,75 10

2,25 20

3,00 30

4,00 45

5,00 45

AN INDIVIDUALFARMER'S SUPPLY

SCHEDULE FORSOYBEANS


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Price and Quantity Supplied:

The Law of Supply

The law of supply

states that there is a

positive relationship

between price andquantity of a good

supplied.

This means that

supply curves typically

have a positive slope.

0

1

2

3

4

5

6

0 10 20 30 40 50Thousands of bushels of soybeans

produced per year

Price

ofsoybean

s

perbushel($)


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Other Determinants of Supply

The pr iceof the good or service.

The cos tof producing the good, which in turn

depends on:

The pr ice of requi red inputs (labor,

capital, and land),

The technologies that can be used to

produce the product,

The prices of related p roduc ts.

Shif f S l V


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A higher price causes

higher quant i ty

suppl ied, and a

move alongthesupply curve.

A change in determinants

of supply other than price

causes an inc rease insupp ly, or a shi f tof the

entire supply curve, from

SA to SB.

Shift of Supply Versus

Movement Along a Supply Curve


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In this example, since the

factor affecting supply is not

the price of soybeans but a

technological change insoybean production, there is

a shift of the supply curve

rather than a movement

along the supply curve.

The technological advance means that

more output can be supplied for at any

given price level.

Shift of Supply Curve for Soybeans

Following Development of a New Seed Strain

Shift f S l V


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To summarize:

Change in price of a good or service

leads to

Change in quantity supplied

(Movement along the curve).

Change in costs, input prices, technology, or prices of

related goods and servicesleads to

Change in supply

(Shift of curve).

Shift of Supply Versus

Movement Along a Supply Curve

F I di id l


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Supply,andMarket

Equilibrium


From Individual

Supply to Market Supply

The supply of a good or service can be defined

for an individual firm, or for a group of firms that

make up a market or an industry.

Market supp lyis the sum of all the quantities ofa good or service supplied per period by all the

firms selling in the market for that good or

service.

F I di id l


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Equilibrium


From Individual

Supply to Market Supply

As with market demand, market supp lyis thehorizontal summation of individual firms supply

curves.


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Market Equilibrium

Marketequi l ibr iumis the condition that exists

when quantity supplied and quantity demanded

are equal.

At equilibrium, there is no tendency for the

market price to change.


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Market Equilibrium

Only in equilibrium isquantity supplied

equal to quantity

demanded.

At any price level

other than P0, such as

P1, quantity supplied

does not equalquantity demanded.


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Excess Demand

Excess demand, or

shor tage, is the condition

that exists when quantity

demanded exceedsquantity supplied at the

current price.

When quantity demanded

exceeds quantity supplied,price tends to rise until

equilibrium is restored.


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Excess Supply

Excess supply, or surp lus,

is the condition that exists

when quantity supplied

exceeds quantity demandedat the current price.

When quantity supplied

exceeds quantity demanded,

price tends to fall untilequilibrium is restored.


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Changes in Equilibrium

Higher demandleads to

higher equilibrium price and

higher equilibrium quantity.

Higher supplyleads to

lower equilibrium price and

higher equilibrium quantity.


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Changes in Equilibrium

Lower demandleads to

lower price and lower

quantity exchanged.

Lower supplyleads to

higher price and lower

quantity exchanged.


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Relative Magnitudes of Change

The relative magnitudes of change in supply and demand

determine the outcome of market equilibrium.


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3:Demand,

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Equilibrium Relative Magnitudes of Change

When supply and demand both increase, quantity

will increase, but price may go up or down.

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