HUKUM PERMINTAAN: Harga barang berbanding terbalik dengan jumlah barang yang diminta.

Artinya bila harga barang meningkat, jumlah barang yang diminta cenderung turun, dan sebaliknya, dengan asumsi ceteris paribus (the other being fixed), yaitu faktor laktor lain tetap (tidak berpengaruh), seperti: tingkat pendapatan, harga barang lain yang berkaitan, selera, jumlah penduduk, dst HUKUM PENAWARAN: Harga barang berbanding lurus dengan jumlah barang yang ditawarkan. Artinya bila harga barang naik, jumlah barang yang ditawarkan cenderung meningkat, dan sebaliknya. Asumsi ceteris paribus (faktor-faktor lain) tidak mempengaruhi, seperti: harga input, tujuan perusahaan, teknologi, kebijakan pemerintah, harga barang yang berkaitan, dst. HUKUM PASAR (HUKUM PERMINTAAN-PENAWARAN): 1. Bila permintaan meningkat, sedangkan penawaran tetap atau turun, maka harga barang cenderung meningkat (ceteris paribus); 2. Bila penawaran meningkat, sedangkan permintaan tetap atau turun, maka harga cenderung menurun (ceteris paribus).

3
HUKUM EKONOMI

Demand & Supply

MARKETS DEFINED

POTENTIAL BUYERS

POTENTIAL SELLERS

MARKETS

DEMAND DEFINED
P QD $5 10 4 20 3 35 2 55 1 80
A schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices.

LAW OF DEMAND

An inverse relationship exists between price and quantity demanded

As Price Falls Quantity Demanded Rises As Price Rises Quantity Demanded Falls

LAW OF DEMAND
DIMINISHING MARGINAL UTILITY INCOME EFFECT SUBSTITUTION EFFECT DEMAND CURVE INDIVIDUAL AND MARKET DEMAND

GRAPHING DEMAND
Price CORN

P
5 4 3

P QD 10 20 35 55 80

Connect the Points

$5 4 3 2 1

Q
20 35
55 80
Quantity

GRAPHING DEMAND
Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 10 20 35 55 80

Connect the Points

D
10 20 30 40 50 60 70 80 Quantity of Corn

GRAPHING DEMAND
Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 10 20 35 55 80

What if Demand Increases?

D
10 20 30 40 50 60 70 80 Quantity of Corn

GRAPHING DEMAND
Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 4 30 10 40 3 20 60 35 Increase 2 80 55 in 80+ 1 Demand

o

Increase in Quantity Demanded

D D Q

10 20 30 40 50 60 70 80 Quantity of Corn

GRAPHING DEMAND
Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 10 20 35 55 80

What if Demand Decreases?

D
10 20 30 40 50 60 70 80 Quantity of Corn

GRAPHING DEMAND
Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 4 -10 10 3 20 20 35 40 2 Decrease 55 60 80 in
1

Decrease in Quantity Demanded

Demand o
10 20 30 40 50 60 70 80 Quantity of Corn

D D Q

DETERMINANTS OF DEMAND Tastes Number of Buyers Income

Normal (Superior) & Inferior Goods

Prices of Related Goods

Substitutes & Complements Unrelated Goods

Expectations

SUPPLY DEFINED
CORN

Supply is a schedule or a curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices.

P QS $1 5 2 20 3 35 4 50 5 60

LAW OF SUPPLY
A direct relationship exists between price and quantity supplied
As Price Rises
Quantity Supplied Rises

As Price Falls
Quantity Supplied Falls

GRAPHING SUPPLY
Price of Corn

$5

CORN

P QS $5 4 3 2 1 60 50 35 20 5

Connect the Points

10 20 30 40 50 60 70 80 Quantity of Corn

GRAPHING SUPPLY
Price of Corn

$5

CORN

What if Supply Increases?

10 20 30 40 50 60 70 80 Quantity of Corn

P QS $5 4 3 2 1
Q

60 50 35 20 5

GRAPHING SUPPLY
Price of Corn

$5

Increase in Supply

S
CORN

in Quantity Supplied
10 20 30 40 50 60 70 80 Quantity of Corn

P QS 80 $5 60 70 4 50 60 3 35 45 2 20 Increase 30 1 5
Q

GRAPHING SUPPLY
Price of Corn

$5

CORN

What if Supply Decreases?

10 20 30 40 50 60 70 80 Quantity of Corn

P QS $5 4 3 2 1
Q

60 50 35 20 5

GRAPHING SUPPLY
Price of Corn Decrease

$5

in Supply

S S
CORN

P QS 45 $5 60 30 4 50 20 3 35 Decrease 2 200 in Quantity 1 5-Supplied

Q

10 20 30 40 50 60 70 80 Quantity of Corn

DETERMINANTS OF SUPPLY Resource Prices Technology Taxes & Subsidies Prices of Other Goods Price Expectations Number of Sellers

DETERMINANTS OF SUPPLY Resource Prices Technology Combining Taxes & with Subsidies Prices Demand of Other Goods Price Expectations Number of Sellers

MARKET DEMAND & SUPPLY

BUSHELS OF CORN

P $5 4 3 2 1

QD 10 20 35 55 80

MARKET

BUSHELS OF CORN

200 DEMAND B 2,000 U 4,000 Y

P QS $5 4 3 2 1 60 50 35 20 5

MARKET

200 SUPPLY S 12,000 E 10,000 L

x 7,000
E
S

x 7,000
4,000 E 1,000
R S

11,000 R 16,000

EQUILIBRIUM

MARKET DEMAND & SUPPLY

Price of Corn CORN MARKET

$5

CORN MARKET

P QD 2,000 $5 4,000 4 7,000 3 11,000 2 16,000 1

PQ
4 3

Market S $5 12,000 Clearing 4 Equilibrium10,000

3 7,000 2 4,000 1 1,000

Q

D
2 4 6

78

10 12 14 16

Quantity of Corn

MARKET DEMAND & SUPPLY

Price of Corn CORN MARKET

$5

P QD 2,000 $5 4,000 4 7,000 3 11,000 2 16,000 1

Surplus

S
At a $4 price

CORN MARKET

PQ

S 12,000 more is being$5

4 supplied than 10,000

demanded

3 7,000 2 4,000 1 1,000

D Q

78

10 12 14 16

Quantity of Corn

MARKET DEMAND & SUPPLY

Price of Corn CORN MARKET

$5

S
At a $2 price

CORN MARKET

P QD 2,000 $5 4,000 4 7,000 3 11,000 2 16,000 1

PQ

S 12,000 more is being $5

4 10,000 demanded than 3 7,000 supplied 2 4,000 1 1,000 Shortage

D
2 4 6

78

101112 14 16

Quantity of Corn

MARKET DEMAND & SUPPLY

Price of Corn CORN MARKET

$5

P QD 2,000 $5 4,000 4 7,000 3 11,000 2 16,000 1

Surplus

CORN MARKET

PQ
S $5 12,000 4 10,000 3 7,000 2 4,000 1 1,000

Shortage
2 4 6

D
78
101112 14 16

Quantity of Corn

MARKET EQUILIBRIUM
Equilibrium Price & Quantity Rationing Function of Prices Changes in Demand Changes in Quantity Demanded Changes in Supply Changes in Quantity Supplied

Multiple Shifts

Complex Cases

Supply Increases; Demand Decreases

Supply Decreases; Demand Increases

Prices Decrease Quantity Indeterminate

Price Increases Quantity Indeterminate

Multiple Shifts

Complex Cases

Supply Increases; Demand Increases

Supply Decreases; Demand Decreases

Prices Indeterminate Quantity Increases

Price Indeterminate Quantity Decreases

Government Set Prices Price Ceilings

Shortages Rationing Problem Black Markets Rent Controls

Price Floors
Surpluses

Price Ceiling
A maximum price that sellers may charge for a good, usually set by government.

Excess Demand (Shortage) Created by a Price Ceiling

Price ceiling
Price Rationing :The process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied. Ration coupons Tickets or coupons that entitle individuals to purchase a certain amount of a given product per month. Black market A market in which illegal trading takes place at market-determined prices.

PRICE FLOORS Price floor A minimum price below which exchange is not permitted. Minimum wage A price floor set under the price of labor. Agricultural Products

INFLATION

Inflation : Inflation This is the process by which the price level rises and money loses value. There are two kinds of inflation: a) Demand pull b) Cost push

Demand pull inflation : Demand pull inflation , may be due to : Increase in money supply and Increase in government purchases Increase in exports
Cost push Inflation : Cost push Inflation Cost push inflation may arise because of : Increase in money wage rates Increase in money prices of raw materials.

AD

AD

Demand pull inflation : Demand pull inflation , may be due to : Increase in money supplyAS and Increase in government purchases Increase in exports

P P E

AS

AD

AS

P P

E E

Cost push Inflation : Cost push Inflation Cost push inflation may arise because of : Increase in money wage rates Increase in money prices of raw materials.

DEMAND PULL INFLATION

AD P AD P E P P E P AS P

COST PUSH INFLATION

AS
AD E; E AS

 THE

BASIS OF RATE OF INFLATION: CREEPING INFLATION. WALKING INFLATION. RUNNING INFLATION. HYPER-INFLATION.

PRICE FLOORS

Price Controls: Two Types

Price Ceiling
u A legally established maximum price at which a good can be sold.

Price Floor
u A legally established minimum price at which a good can be sold.

Price Floors
When the government imposes a price floor, two outcomes are possible.
u The price floor is not binding if set below the equilibrium price. u The price floor is binding if set above the equilibrium price, leading to a surplus.

A Price Floor That Is Not Binding...

Price of Shave-Ice Cone Equilibrium price

Supply

$3 2 Price floor Demand

0

Equilibrium quantity

100

Quantity of Shave-Ice Cones

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

A Price Floor That Is Binding...

Price of #2 Wheat

Surplus $4 $3
Equilibrium price

Supply

Price floor

Demand
0

Quantity demanded

80

Quantity supplied

120

Quantity of #2 Wheat

Effects of a Price Floor

uA price floor prevents supply and demand from moving toward the equilibrium price and quantity. uWhen the market price hits the floor, it can fall no further, and the market price equals the floor price.

Effects of a Price Floor A binding price floor causes . . . a surplus because QS >QD. nonprice rationing is an alternative mechanism for rationing the good, using discrimination criteria.
uExamples: The minimum wage, Agricultural price supports

The Minimum Wage

An important example of a price floor is the minimum wage. Minimum wage laws dictate the lowest price possible for labor that any employer may pay.

The Minimum Wage

Wage

A Free Labor Market

Labor supply

Equilibrium wage

Labor demand 0
Equilibrium employment

Quantity of Labor

The Minimum Wage

Wage

A Labor Market with a Minimum Wage

Labor surplus (unemployment)

Labor supply

Minimum wage

Labor demand 0
Quantity demanded Quantity supplied

Quantity of Labor

Effects of Minimum Wage

McDonalds employment? Employment on Macademia tree farms? UH research projects? Other attributes of a minimum wage job are diminished:
Less likelihood of health insurance, less training, More discrimination in hiring

Summary
u Price controls include price ceilings and price floors. u A price ceiling is a legal maximum on the price of a good or service. An example is rent control. u A price floor is a legal minimum on the price of a good or a service. An example is the minimum wage.

Price Ceilings
ECON 130(3) September 14-16, 2009 Sumner La Croix

Supply, Demand, and Government Policies

u In a unregulated market system with open entry and exit, market forces establish equilibrium prices and quantities. u While equilibrium conditions may be efficient, not everyone will be satisfied with the outcomes.
Consumers Producers

Price Controls...
u

Are usually enacted when policymakers believe the market price is unfair to buyers or sellers. Result in government-created price ceilings or price floors.

Price Ceilings & Price Floors

Price Ceiling
u A legally established maximum price at which a good can be sold.

Price Floor
u A legally established minimum price at which a good can be sold.

Price Ceilings
Two outcomes are possible when the government imposes a price ceiling:
The price ceiling is not binding if set above the equilibrium price. The price ceiling is binding if set below the equilibrium price, leading to a shortage.

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

A Price Ceiling That Is Not Binding

Price of Oranges-lb

Supply
4 $3 Equilibrium price Price ceiling

Demand
0 100 Equilibrium Quantity Quantity of Oranges lbs

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

A Price Ceiling That Is Binding

Price of Oranges-lb

Supply
Equilibrium price $3 2 Price ceiling

Shortage

Demand
0 75 Quantity supplied 125 Quantity demanded Quantity of Oranges-lbs

Effects of Price Ceilings

A binding price ceiling creates shortages because QD > QS
u

Gasoline shortage of the 1970s Long lines Discrimination by sellers

nonprice rationing
u u

Rationing Resources
u Price Rationing
Efficient Impersonal

u Non-price Rationing
Long lines
Waste buyers time Inefficient

Discrimination by sellers:
Goods may not go to buyer who value it most highly Inefficient Potentially unfair

Lines at the Gas Pump

In 1973, OPEC raised the price of crude oil in world markets. Because crude oil is the major input used to make gasoline, the higher oil prices reduced the supply of gasoline.

What was responsible for the long gas lines? Economists blame government regulations that limited the price oil companies could charge for gasoline.

Initially
Price of Gasoline

Supply 1. The price ceiling is not binding . . . P1

Price ceiling

Demand Q1 Quantity of Gasoline

Then
Price of Gasoline
S2

2. supply falls ...

S1

P2 Price ceiling P1 4. . . . resulting in a shortage. QS QD Q 1 3. . . . the price ceiling becomes binding . . . Demand Quantity of Gasoline

Rent Control
u Rent controls are ceilings placed on the rents that landlords may charge tenants u Goal: to help the poor by making housing more affordable u New York City rent controls were enacted as a WWII emergency measure
u Some units still under rent control today u Many rich tenants in rich neighborhoods paying low WWII prices.

Rent Control in the Short Run...

Rental Price of Apartment

Supply

Supply and demand for apartments are relatively inelastic

Controlled rent

Shortage

Demand
0 Quantity of Apartments

Rent Control in the Long Run...

Rental Price of Apartment

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

u You are already in a desirable house? u You are a UH student looking for a place to live? u You are a member of a minority group subject to discrimination? u You are poor and cannot afford market rents in an uncontrolled market? u You are the owner of a rental unit?

Who would gain and Who would lose From rent control in Honolulu?

Effects of Rent Control

u Discrimination against any groups who are less favored by landlords. u Bribery by potential tenants. u Key money charged??? u Unbundling of services.??? u Less maintenance or remodeling. u Age of appliances.