Economics Supply and Demand PDF

With this collection, because we need to bring in the production side, right? But I want to put it into this framework of demand. So that's what I want to go to next. So I want you to take off your consumer hat. We're all very used to making lots of choices about consumption today to put on your man...

With this collection, because we need to bring in the production side, right? But I want to put it into this framework of demand. So that's what I want to go to next. So I want you to take off your consumer hat. We're all very used to making lots of choices about consumption today to put on your managers matter. Your birds had word. Slightly differently about. Compass, at least the assumptions of what we're trying to accomplish with this kind of model. So let me again reiterate, the assumptions I'm getting ready to put up here are very simple and simplistic and you have to start somewhere. There will be burns that think about interactions in the market. Differently. I'm good. What I'm going to do, you have to start somewhere. So let's get a baseline of thinking about how firms are operating with their time to do. And then in other classes and other modules we may think of alternative ways for firms. So that is a kind of background. What are we going to assume or this class is like through the Really, it's the basic assumption for much of the. Firms. Think about when you're thinking box apply so. We're going to assume that person thinking surely about profits. Time firms you with your firm hat on. You're trying to maximise your problems. Possible, possible price that you can so that you're generating the maximum amount of profits that you can't. You're making choices about the quality that you want to produce in order to satisfy that first assumption. Yeah. Other states. Just simple right now. These models. OK. So what that means is that what the firm wants to do, whether it's able to do it is a different issue. Talk about later in the class. They want to do is to produce as much as they had a week add his firms himself it has. We may be limited in our ability to do this. Just like any other economic model, there are constraints, so there may be constraints in our ability to produce some. Charge ability pounds each for each one right and market itself may help there. So there will be constraints and limits. Because there are those constraints. In our ability to make choices. Yeah. We also need. Is a production to use. Park that the right now we're not going to be so interested in that question currently we come back to this later on in logical will talk much more about how we. How we actually put together combinations of factors of production. So let's just assume at this point that indeed we can do that the best way to store sufficiently. Just think about what? OK, so those are the key assumptions. The basic assumptions that we have in this model from the supply side of. There are some other or something that in the background will come back to those. OK, so. Just like we had a lot of demand, we have quote law of some type, which is going to be a relationship between price. Price and quantity supply. Stories, stories about what that relationship might be between the opportunity costs and the quantity supply or refer. We're going to put much more detail on this intuition later on modules, but I don't want. Falling down and all of that is already did you the intuition first really important to understand. Then we'll go. Details. OK, So what are the two store This is story and what happens a firm who are. Do you like higher prices for whatever you're producing? Yes, yeah. You like higher? Why? What is the economic institution behind that? And it's about opportunity cost. This particular service. And just like more the demand, I thought about the relative costs of doing that do the same thing here between production of. The price of this thing goes up and I wanted to the price of this thing. Which one of the two would I rather produce? This is the opportunity cost says I should be doing that. If I could get a better return on that then doing whatever this. My. To this other thing with the price. Right. Move away from. Continues to go up and up and up. I'm pulling more resources out of. Second thing and dumping it into this production because those prices are going higher. Supplies that I want. Increase. That story. So two things about it. Perhaps in the. More business minded and less economic. From a from an explicit cost. As a firm, do you like to pay more for is a practise in production? Wages Electricity, however. More for that. No more from that property, right? Increase the prices and reduce costs. You don't like? A higher prices or wages or physical. So how do we turn this? As we had in the last. So think about it. Instead of the opportunity cost, think about extensive. You are going to produce more, whatever this thing is. All these sources coming over from some other activity into this unlikely war in terms of wages. More people are, over time, making other things. After. Expensive. Bigger. The only incentive that I'm going to get to produce more over here. Of compensating for those higher wages, for increased physical capital costs, for the increased power costs that I have. Centre point all the way up. Here is if I get that higher prices and higher costs. Yes, I did one. Sorry. Is. Surely opposite. Sometimes. Things to think about, and indeed sometimes it's very useful. Today to think about the incentives. What are the incentives for production? So only produce that only if. Both of these stories loss. Lationship between higher prices and higher. Let's bring up our. About. Your brain, after yesterday, I can tell you 50 times. Don't think about that. It's just price as you know. Price. How long the X axis change the X axis? Supplier firms decisions about how many? More. On our. Low price. Are you have a firm wanting to produce a? Cost opportunity cost where you know. So. Do that, we're going to have a set of determinism supplies just like we had a set. Permanence of. Yes. Where? What is non price means that could affect supply? Again, you can probably come up with a longer list. Keeping lines are the following. Technology. Technology affects the full activity in the production process. How do you put your? In order to reduce. Technology. You are lower cost. That's one thing is the input prices. We talked about that as sentence story. But if you have a change in wages, for example, so we need to start to go up quite a lot, that means you're back. About how many people supply price? Electricity prices, resource prices, petrol prices. Any prices? Really comes up very important for style. Similar arguments for the man is thinking about expecting future prices right so hot. Thinking six months down the road I can get a higher price or whatever I'm producing. Maybe I hold back now because I know that in six months time, so whatever I'm producing for a better price later off or reduce my supply now and sell it later. Prices. Are better in the future. About. Down. What happened in reducing trying to sell now before the market traders and later on? So. And then just like you said, all of these 1-2 and three are about individual firms and their decision making. But ultimately we want to build this up and aggregated all the sellers within a particular market, so the number of sellers. More fewer cell is there in that particular argument, you can also move our market suppliers. As I said. How? It is all of these just like we had on pricing. Found. Movements in these things. Assuming that their constant but they do change, then they change the location. Just like a mountain. She's the rotational tracker. That's still here's a presented supply right price on the X axis, we've gotta quantity supplied on our Y axis and then I've got some positive relationship between my price and my quantity supplied. I. These four things and anything else that you can think of. When I write down this. Whenever something. OK. But now let's let's something change, right. Let's have as we did before we start off with increase in demand, this row within increase. But increasing supply says is that for a given price. I was willing to supply this amount before that, this higher price, willing supply this price, sorry, this quantity of that pricing. Now I'm willing to supply a lot more at that price. For medium price this is how much I wanted. For now, this is how much I would. At this meeting, low prices. Or after whatever changes. Secondly. This is my life for how I want to do something else. And so he gives me a new supply curve. New blue supply curve that is our increase in supply for every price I'm willing to supply more and that I thought was. What types of things would generate? Supply. List is based on the score. Mothers that we generate this increase in technology increases, we're making our actors and production more productive than they word or so we want to utilise increase. Input prices going down to wages that we're paying for workers go away. Elements, the prices of those they go down, then we're willing to supply to word. I.'Cause these. As I just mentioned, think about future when the spectrum ginger pricing through that logical reason now, not later. This is the market for now, however produce more now. Supply. And of this market supplier then? More. Market. People. Then the market supply of. So. Yes. Price. Firm it doesn't go up, but overall. It will go up because some of these firms coming into the room will produce. OK. So this gives us this idea of increases by similarly we can just go backwards. So decrease in supply whereas price. Less. New supplier this red supply curve S double prime. Decrease in supply. Add. Left. And what generates all that? Well, it's just the opposite list of what I had up. Somehow. And. Input prices. Power prices. Ever using power? Prices go up. Expected future prices go up And then we're in the market. And. Leave. We are in full. At all. Markets. So. But the thing to remember still looking wise, it's really, really important for you to know what these non price determinants of supply. Also. Off. Because we're going to be as well. Split on flying table we start changing these things around. You know how these markets operate. What causes these kinds of? This. To analyse how markets respond when things. Change. A lot of number isation. But I think this could be one of the most important things actually. Just go with memorise. Because that's the key thing for understanding how. Work a lot of times. Answer questions, assessments, no flip things around or any not remember. Switch the demand is high on price differences such don't do that because I'm getting very different. Please do. OK. Put it all together, I just want to give the warning again as I did at the end of class. The same kind of. Very important. Changes that. Recognise this difference in terminology changes quantity supplied. Versus. Similar. Man, that they are very. Understand so changing quantity supply. Because that. And it's a movement along that supply for. Has the relationship. Level. We contrast that with a change in supply. It comes about. Supply. Those things changes. Other things, but it moves the entire curve. Increase in supply, right? Decrease in supply. So yeah. Internalise that. Keep that in your. Some people have seen this kind of stuff before. Seen some Spiderman? You will know how fundamental this is as a tool. Toolbox thinking about exchange and importantly, efficiency or lack of additions, however. The highlight? Had to get. Your module. Make much much much easier. Really have a good handle. OK. So we've described the demand side market. The supply side of the market. But they're not isolated. Is ultimately where we want to get to is thinking about putting these two things together and to give out just like we did with production possibilities frontier. This thing about studying all we're going to see any kind of exchange between those are really wine via food. Happens in the production possibilities frontier framework and indeed it's going to happen in this market framework which. And we want to be able to catch the best, right? So in order to do that, we put them together and that's really the focus of this particular lecture, putting together given the building blocks for this in terms of also. We've actually already established the building blocks of micro level. So a lot of. Winter term is really just aggregating up in the stuff that we're talking about starting. OK. So what are the questions about going to ask in this particular like service? So previous signs that markets. Yes, that is fine. Exactly what that means. You at least tell you why it's important. Clear and clear. Why? Order. Gets to an equilibrium and it's very simplistic simple way. And then? Problem with this table. Show you how. Ferguson That's all I really care about is understanding this class, but I want to show you how we. For your interest in you, go on economics. OK, so the first question first define. I. I. Clear about that. Because yeah, it's one of these concepts again and again and again. At least hard times. Course. Typing. Slightly. All the other things matter too. Log. Is really. Answer. Is really important. Love Amanda said negative relationship with the left really has ended. Service. Positive. Good. Notice to and then the third one. Equilibrium constant is central. Not just understanding. Understanding how central markets are. Not today. The benefits? OK, so. What is an equilibrium mean? So. Graphical sentence. It's that tendency to stay in a market context at a particular price and quantity relation. In that month. So there's no incentive for you. Whenever point did you end up with? If you don't want to change, and neither side really wants to change from that point, then we'll call that. If you want to change. Close. That point is. That's not an English. Put a little bit more restriction on this is to say that right now, or certainly nor in any other. This is generally without the help or influence of. Government or other particular firm or. Or any other institution. Thank God. Almost all of these things that makes me will pick up later on in the class and don't worry. Yes. Rubbish. It's not good because of Zed. Usually XY&Z are in this group. It's because you made delete comments coming really. To get to an allocation, but it's not the right one or that aren't helping markets in that little whatever. Right now we're abstracting away for all of that, but we will add that in later. Is that tendency by? Speak. Don't want to stick with that. Better off. Makes you want to sleep. Right, so. Think of what it is, but I think it will become a little bit more clear. As what we're trying to do if I worked through an example again, generally sample graphical example. And this will sort of highlight some of the key themes of the decisions that are going on behind the scenes in to think about market, don't necessarily think about the actions of suppliers in commands outside. We're really interested. In here. So let's just take the following supply and demand. Usually. Linear supply curve. Whose quantity demanded and supplies so just how much of the recent? And along the Y axis. Price. Alright so before I start saying anything, we all know. Even if you have a double meaning, you know exactly where we're going to go, right? You can see the eye is drawn since actually where we're going to go. But I only go there quite yet 'cause I want to think about the mechanism of why our eyes go to intersection between them and have. Tells us about how the market is trying to hop in. OK. So let's take the price that isn't that, that intersection, this problem low price and see how the two sides of the market respond to that move. Here's a red low price. Notably something. I see how the two sides. As a buyer. Like little prices? As is built on that model. Right. Right. So how do we represent that on many curves? Well, we look at the price and think about, all right, how many would we want to buy at this low price? Low price and. That would be the quantity that you would demand this market with demand if the price was misread low. Response. Well, we would predict centre asparagus holding everything else constant given that demand here and that's this ponds that consumers in the market would how many they would want to buy it at that price. OK, that's fine. Take off your consumer happy about your do you like the prices? Crisis. How do we represent that? Well, more than curves, that's not our her or her. That supplier is supplied clear and I go up in a little pricey. It doesn't give me much of incentive to produce rather to do something else or a lot of something else. And so the intersection of that low price with that supply curve gives me. How much? Low price were price. OK. So what situation do you have? You have the situation where you've got lots and lots of people running around looking. Mentioned it would be good. But firms not. The market go. Lots of Big Brother looking for a good. The. Situation. Is greater than the quantity supply in terms of that excess demand. Quality supply. With all this, now we think about. Full price and then bulleted going back to the previous supply, is there a price that? Is better. Low price for. That's the question that we need. And if the two sides would like to change that price, then blue price is not an active yttrium and we want to go to the better price. Certainly we want. Better price. A higher price. Something like this green fireflies? I mean, I think the same thing, that the same kind of argue, the same kind of analysis. Houses. They did offer the commands curved Spires. As you get. There. So the first thing to note is of course we still have a case in access to map. Still live. Really necessary. Rather low price or higher prices better, but let's think about the different parts of. Right. About it from consumer pointing right, So before. We had a bunch of people running around looking for the good and only some of them were able to get to the right. Firms that actually. You have this number of. Services. Low price. What happens now is once you move into these green lines, you still have some people. These people were people who were in the market for. Couldn't get it and now they actually dropped out of. I dropped out of art because the price is not higher, so this. Part of the triangle, these are people who are leaving the market because the price is not too high. That's this. What about this? Still the access and add when they didn't get it before, they're not getting him out. So again, there's not any worse off. What about this group? They didn't get it before 'cause they were in the old excess demand, but now? They're getting. They're given the good, they're better off. And knowledge. So there are some buyers. With a higher price. A little bit tighter onto it, but it means that they can buy the good word. Similarly you can talk about this. This applies. That's out there. A higher price, Of course, these firms are quite happy they weren't in the market for this device too. Low. Triangle. Now some firms are into the market. So both suppliers and the matters on both sides of the market are happier with this higher price. Low price. A better practise. So if that's the case then maybe we need to try. Tried an even higher price. Yes. So. Video on it. Cliff edge. Always here. So again, you think about the analysis of the two sides respond to that well, again, consumers, they don't like high prices, they took back their quantity demand. Is quite small. Suppliers like higher prices, Yes, you can answer that question earlier today, how they respond? Supply. Opposite situations where we have. Production going on? Not much. And. Big cat cell. So what do we want to do? Certainly no better off of anything higher than this, right? Because the higher you go, the bigger. So what we need? Price. Price. Each price drop accessible. Well, mov