KINH TẾ VI MÔ Chapter 2 for student

Movement and shift of demand curve I.. Definitions - Demand D: The quantity of goods and services that consumer is willing to buy and afford to buy at various price level in a certain

Chapter 2 DEMAND AND SUPPLY

Content

+ Supply

+ Market equilibrium

I Demand

1 Definitions

2 The law of demand

3 Demonstrating demand

4 Determinants in demand function

5 Movement and shift of demand curve

I Demand

1 Definitions

- Demand (D): The quantity of goods and services that consumer is

willing to buy and afford to buy at various price level in a certain time,

ceteris paribus.

- Quantity demanded (Q D ): The quantity of goods and services that

consumer is willing to buy and afford to buy at a price level in a certain

time, ceteris paribus.

- Individual demand

I Demand

2 The law of demand

P

QD P

QD

I Demand

3 Demonstrating demand

P = - aQD+ b

QD= - aP + b

QD= f (Px, Py, I, T, E, N)

P

Q

P1

P2

Q1 Q2 A

B

I Demand

4 Determinants in demand function

4.1 Price of related goods (PY)

- Substitutes goods: A and B are substitutes if the usage of A can

be replaced by the usage of B, provided that the initial

consumption target is unchanged

I Demand

4 Determinants in demand function

4.1 Price of related goods (PY)

- Complements goods: A and B are complements if the usage of

A must go together with the usage of B to ensure the initial

utility of both goods

I Demand

4 Determinants in demand function

4.2 Income of consumer (I)

Normal goods

Inferior goods

I Demand

4 Determinants in demand function

4.2 Income of consumer (I)

- Engel curve: Attitude

toward any goods

depends on buyer’s

income, not on goods’

quality

I

I Demand

4 Determinants in demand function

4.3 Taste of consumer (T)

4.4 Expectation of consumer (E)

4.5 Number of consumer (N)

I Demand

5 Movement and shift of the demand curve

- Movement: PX

- Shift: The rest determinants

1 Chicken and fish are substitutes goods.

a The decrease in chicken’s price causes a

movement in fish’s demand curve

b The increase in chicken’s price causes a left

shift in fish’s demand curve



II Supply

1 Definitions

2 The law of supply

3 Demonstrating supply

4 Determinants in supply function

5 Movement and shift of supply curve

II Supply

1 Definitions

- Supply (S) : The quantity of goods and services that

supplier is willing to supply and able to supply at various

price level in a certain time, ceteris paribus.

- Quantity supplied (QS): The quantity of goods and

services that supplier is willing to supply and able to supply

at a price level in a certain time, ceteris paribus.

II Supply

2 The law of supply

II Supply

3 Demonstrating supply

- Supply schedule

- Supply curve

- Supply function

P = aQS + b

QS=aP + b

QS = f (Px, Pi, G, Te, E, N)



P

Q

P1

P2

Q1 Q2

II Supply

4 Determinants in supply function

4.1 Price of inputs (Pi)

4.2 Government’s policies

4.3 Technology

4.4 Expectation

4.5 Number of supplier

S

QS

II Supply

5 Movement and shift of the supply curve

- Movement: PX:

- Shift: The rest determinants

-

S

S1

III Market equilibrium

1 Equilibrium status

2 Surplus and shortage

3 Price controlling

III Market equilibrium

1 Equilibrium status

- Status in which quantity

demanded equals to

quantity supplied

- - Merger demand schedule

and supply schedule

P = -aQD + b

P = cQS + d

E (PE, QE)

- Intersection of (S) and (D)

-

D

S

E

PE

QE

P

Q

III Market equilibrium

2 Surplus and shortage

- Shortage

+ P2 < PE

+ QS < QD => shortage

+ Appear market’s

pressure to make P2

return to the equilibrium

price

Shortage

PE

QE

III Market equilibrium

2 Surplus and shortage

- Surplus:

+ P1 > PE

+ QS > QD => surplus

+ Appear market’s

pressure to make P2

return to the equilibrium

price



Surplus

PE

P1

QE

III Market equilibrium

3 Price controlling

- Controlled by the Government

- Ceiling price (PC)

+ The highest price allowed

in the market

+ For the sake of buyer

+ Appear shortage

+ Government’s responsibility

E

PE

III Market equilibrium

3 Price controlling

- Floor price (PF)

+ The lowest price allowed

in the market

+ For the sake of supplier

+ Appear surplus

+ Government’s responsibility

PE

QE