Chapter 5: Using supply and demand. In this chapter you will learn: Apply the supply and demand model to real-word events, demonstrate the effect of a price ceiling and a price floor on a market, explain the effect of excise taxes and tariffs on a market, explain the effect of quantity restrictions on a market, explain the effect of a third-party payer system on equilibrium price and quantity.
Trang 1Using Supply and Demand
It is by invisible hands that
we are bent and tortured worst.
— Nietzsche
Trang 2Chapter Goals
Ø Explain the effect of excise taxes and tariffs on a market
Ø Demonstrate the effect of a price ceiling and a price floor
on a market
Ø Explain the effect of quantity restrictions on a market
Ø Explain the effect of a third-party payer system on
equilibrium price and quantity
Trang 3Application: Apples in the United States
D 0
Quantity
The hurricane damage caused the supply curve
to shift left
Hurricane Irene destroyed a significant portion of the apple crop in the northeastern U.S.
S 1
Price rose from P0 to P1
where quantity demanded =
quantity supplied
Q
1
P
1
S 0
Pric
e
P
0
Q
Apples
Excess demand
Trang 4Application: Sales of SUVs in the U.S
P
0
Q
1
P
1
Increasing gas costs
causes the demand curve
to shift left
Gasoline in the U.S is
increasingly expensive
Price for SUVs fell
from P0 to P1 where
Q demanded = Q
supplied
S 0
D 0
Pric e
Quantit Q
SUVs
Excess supply
D 1
Trang 5Application: Edible Oils in the World
S 0
D 0
Price
Quantity
Growing middle class in Asia has increased demand for oils
S 1
At the same time, U.S
farmers are growing more
corn and less soy (less soy oil)
Edible Oils
P
0
P
1
D 1
The result is increased prices
for edible oils
Trang 6A Review of Changes in Supply and Demand
No change
in Supply Supply increases Supply decreases
No change
in Demand
P same
Q same
P down
Q up
P up
Q down
Demand
increases
P up
Q up
P ambiguous
Q up
P up
Q ambiguous
Demand
decreases
P down
Q down
P down
Q ambiguous
P ambiguous
Q down
Trang 7Government Intervention
• Price ceilings and price floors
• Excise taxes and tariffs
• Quantity restrictions
Ø The invisible hand is not the only factor in determining
prices; social and political forces also determine price
Trang 8Government Intervention: Price Ceilings
buyers, it imposes a price ceiling
Ø A price ceiling is a government-imposed limit on how
high a price can be charged
Ø With price ceilings, existing goods are no longer rationed
entirely by price so other methods of rationing arise
Ø Price ceilings below equilibrium price will have an effect
on the market
Trang 9Government Intervention: Price Floors
falling below a certain level to favor suppliers, it
imposes a price floor
Ø A price floor is a government-imposed limit on how low
a price can be charged
Ø Price floors above equilibrium price will have an effect
on the market
Trang 10Government Intervention: Excise Taxes
Ø An excise tax is a tax that is levied on a specific good
Ø A tariff is an excise tax on an imported good
Ø The result of taxes and tariffs is an increase in
equilibrium prices and reduce equilibrium quantities
Trang 11Government Intervention: Quantity Restrictions
entry into a market
financial planners, cosmetologists, electricians, or taxi
cab drivers
Ø The results of limited number of licenses in a market
are increases in wages and an increases in the price of
obtaining the license
Trang 12Government Intervention:
Third-Party-Payer Markets
the good differs from the person paying for the good
higher in third-party-payer markets
chooses how much to purchase doesn’t pay the entire
cost
through social and political means
Trang 13Chapter Summary
and demand
price can be charged, create surpluses
a price can be charged, create shortages
Ø Taxes and tariffs paid by suppliers shift the supply curve
up by the amount of the tax or tariff and increase
equilibrium price and decrease quantity
Trang 14Chapter Summary
Ø Quantity restrictions increase equilibrium price and
reduce equilibrium quantity
one who pays the cost differ Quantity demanded,
price, and total spending are greater when a third party
pays than when the consumer pays