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Session 1
Topics To Be Covered
Introduction
Definition of Economics
Market Definition
Demand Schedule, Curve, and Functions
Supply Schedule, Curve, and Functions
Topics To Be Covered
Change in Quantity Demanded versus
Change in Demand
Change in Quantity Supplied versus
Change in Supply
Equilibrium of Supply and Demand
Price Ceiling
Price Floor
Objectives
Objectives of bilingual education
To learn
Arrangement
Revision of the previous session
Weekly quiz
Students presentation on the
knowledge learned in the previous
session
New contents
Summary
Assignment
Requirements
Attendance
Participation
Curiosity and Practice
Grading
Attendance (20%)
Class performance (10%)
Quiz (20%
Final Examination (50%)
Definition of Economics
Economics is the study of how societies
choose to use scarce productive
resources that have alternative uses, to
produce commodities of various kinds,
and to distribute them among different
groups.
Microeconomics vs.
Macroeconomics
Microeconomics is the study of how
individual households and firms make
decisions and how they interact with one
another in markets.
Macroeconomics is the study of the
economy as a whole with respect to
output, price level, employment, and
other aggregate economic variables.
of modern economics.
Research into pricing of land, labor, and
capital.
Invisible hand.
Market Definition
A market is an arrangement
whereby buyers and sellers
interact to determine the prices
and quantities of a commodity.
Market for
Goods
and Services
Firms
Deman
d
Goods &
Services
bought
Households
Inputs for
production
Deman
d
Market for
Factors
of Production
Labor, land,
and capital
Supply
Demand
Quantity demanded
is the amount
of a good that buyers are
willing and able
to purchase.
Demand Schedule
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
12
10
8
6
4
2
0
Demand Curve
P
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
Qd=12 4P
0 1
2 3 4 5 6 7 8 9 1
0
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
1
1
1
2
Quantity
12
10
8
6
4
2
0
Qd
Determinants of Demand
Market price (P)
Consumer income (M)
Prices of related goods (Pr)
Tastes (T)
Expectations (Pe)
Number of consumers (N)
Demand Functions
Qd = f (P, M, Pr, T, Pe, N)
Qd = a + bP + cM + dPr+ eT
+ fPe + gN
Qd = f (P, M, Pr, T, Pe, N)
Qd = f (P)
Qd = a + bP
Ceteris Paribus
Ceteris paribus is a Latin phrase that
means all variables other than the
ones being studied are assumed to be
constant. Literally, ceteris paribus
means other things being equal.
The demand curve slopes downward
because, ceteris paribus, lower prices
imply a greater quantity demanded!
Market Demand
Market demand refers to the sum of
all individual demands for a
particular good or service.
Graphically, individual demand
curves are summed horizontally to
obtain the market demand curve.
$4.0
0
2.00
D1
0
12
20
Qd
Changes in Demand
Increase in
demand
2.00
Decrease in
demand
D2
0
D3
20
D1
30
Qd
Consumer Income
As income increases the demand
for a normal good will increase.
As income increases the demand
for an inferior good will decrease.
Consumer Income
Pric
e
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
Normal Good
An
increase
in
income...
Increase
in demand
D1
0 1
2 3 4 5 6 7 8 9 1
0
1
1
1
2
D2
Quantity
Consumer Income
Inferior Good
Price
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
An
increase
in
income...
Decrease
in demand
D2
0 1
2 3 4 5 6 7 8 9 1
0
D1
1
1
1
2
Quantity
A Change in
This Variable . . .
Price
Represents a movement
along the demand curve
Income
Expectations
Number of
buyers
Supply
Quantity supplied
is the amount of a good
that sellers are
willing and able
to sell.
Law of Supply
Supply Schedule
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
0
0
1
2
3
4
5
Supply Curve
Qs = - 1 + 2P
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
0
1 2 3 4 5 6 7 8 9 1
0
Quantity
0
0
1
2
3
4
5
1
1
1
2
Qs
Determinants of Supply
Market price (P)
Input prices (PI)
Related goods prices (Pr)
Technology (T)
Expectations (Pe)
Number of firms (F)
Supply Functions
Qs = g (P, PI, Pr, T, Pe, F)
Qs = h + kP + l PI + mPr+ nT
+ rPe + sF
Qs = g (P, PI, Pr, T, Pe, F)
Qs = g (P)
Qs = h + kP
Market Supply
Market supply refers to the sum of
all individual supplies for all sellers
of a particular good or service.
Graphically, individual supply
curves are summed horizontally to
obtain the market supply curve.
S
C
$3.0
0
1.00
Qs
Change in Supply
S3
S1
S2
Decrease
in Supply
Increase
in Supply
Qs
Price
Input prices
Technology
Expectations
Number of sellers
Equilibrium Quantity
The quantity that balances supply and
demand. On a graph it is the quantity at
which the supply and demand curves
intersect.
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
19
16
13
10
7
4
1
Supply
Schedule
Price
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
0
0
1
4
7
10
13
Equilibrium of
Supply
and
Demand
P
Qd=19 6P
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
Supply
Equilibriu
m
Qd= Qs
Qs = - 5 + 6P
0
1 2 3 4 5 6 7 8 9 10 11 12
Demand
Supply
$2.50
New equilibrium
2.00
2. ...resulting
in a higher
price...
Initial
equilibrium
D2
D1
0
7
3. ...and a higher
quantity sold.
10
Quantity
S2
1. An earthquake reduces
the supply of ice cream...
S1
New
equilibrium
$2.50
2.00
Initial equilibrium
2. ...resulting
in a higher
price...
Demand
1 2 3 4
7 8 9 10 11 12 13
3. ...and a lower
quantity sold.
Quantity
No Change
I n Supply
An I ncrease
I n Supply
A Decrease
I n Supply
P
Q
P
Q
P
Q
P
Q
P
Q
P
Q
P
Q
P
Q
P
Q
same
same
up
up
down
down
down
up
ambiguous
up
down
ambiguous
up
down
up
ambiguous
ambiguous
down
Excess Supply
Supply
Surplus
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
Demand
0
1 2 3 4 5 6 7 8 9 1
0
11 12
Surplus
When the price is above the equilibrium
price, the quantity supplied exceeds the
quantity demanded. There is excess supply
or a surplus. Suppliers will lower the price
to increase sales, thereby moving toward
equilibrium.
Excess Demand
Price
Supply
$2.00
$1.50
Shortage
5 6
8 9 10 11 12 13
Demand
Quantity
Shortage
When the price is below the equilibrium
price, the quantity demanded exceeds the
quantity supplied. There is excess demand
or a shortage. Suppliers will raise the price
due to too many buyers chasing too few
goods, thereby moving toward equilibrium.
Price Floor
A legally established minimum price at
which a good can be sold.
Supply
Equilibrium
price
$3
2
Price
ceiling
Shortage
Demand
0
75
125
Quantity Quantity
supplied demanded
Shortages
Non-price rationing
Black market
Corruption
Rent Control
Rent controls are ceilings placed on the
rents that landlords may charge their
tenants.
The goal of rent control policy is to help
the poor by making housing more
affordable.
One economist called rent control the
best way to destroy a city, other than
bombing.
Supply and
demand for
apartments
are relatively
inelastic
Supply
Controlled rent
Shortage
Demand
0
Quantity of
Apartments
Because the
supply and
demand for
apartments are
more elastic...
Supply
rent control
causes a
large
shortage
Controlled rent
Shortage
Demand
0
Quantity of
Apartments
Price floor
$3
Equilibriu
m
price
Demand
0
80
120
Quantity Quantity
demanded supplied
A Free Labor
Market
Labor
supply
Equilibriu
m
wage
Labor
demand
0
Equilibrium
employmen
t
Quantity of
Labor
Labor
supply
Minimum
wage
Labor
demand
0
Quantity
demanded
Quantity
supplied
Quantity of
Labor
Assignment
Review Part One (P1- 59)
Do Exercises on P58-59
Preview Chapter 4 (P62-79)
Thanks