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Economics

Market Equilibrium

Dept. of Economics @ NCKU


Weng, Ming-Hung
Impact from birdflu?
Determinants (Factors) of demand
Determinants (Factors)
of demand other than P Demand
its own price
Number of consumers P1
Preference or tastes
Income of consumers
Beliefs about future P2
Prices of related Demand
products
Substitutes
complements Q1 Q2 Q
Preference or tastes
Shift (increase or
decrease) in demand vs.
P Demand (after)
movement along the
demand curve (caused P1
by change in its own
price)
P2
Demand (before)
Preference or tastes
bird flu on poultry/egg
Q1 Q2 Q
consumption (-)
Preference or tastes
Preference or tastes
P
bird flu on
chick/duck/egg
consumption
P1
If brown eggs are more
nutritious than white
eggs, its demand will be P2
___ that of white ones.
1. bigger than
2. smaller than
3. the same as Q1 Q2 Q
Income of consumers
Income of consumers
P Demand
Normal goods (+)
Inferior goods (-)
P1

P2
Demand

Q1 Q2 Q
Smoking (*)
According to Finance Minister Sheu Yu-jer (
), drawing from statistics compiled by the
ministry, the smoking rate for people with a
monthly income between NT$20,000 to
NT$40,000 is more than 20 percent, while the
rate is a higher 34 percent for those who earn
more than NT$100,000 per month.
Based on the information, smoking is a(n)
1. normal good.
2. inferior good.
3. Cannot determine from the info.
Belief about future price

Alternatively, in response
to a upcoming price drop,
the current demand for
CPCS gasoline will
1. increase
2. decrease
3. remain unchanged
4. move up along the
demand curve
Prices of related products
Prices of related
products
P Demand
Substitutes (Coke vs
Pepsi; rice vs wheat, etc) P1
Complements (meat vs
BBQ sauce; peanut
butter vs jelly, etc) P2
Demand

Q1 Q2 Q
Prices of related products
If price of its substitute,
mango ice, has dropped, P Demand
the demand for Adzuki
bean ice will (are you P1
more willing or less
willing to buy?)
1. Shift to its right P2
(increase)
Demand
2. Shift to its left
(decrease)
3. Remain unchanged Q1 Q2 Q
Attention! shopper
As on-line shopping becomes easier, visitors to
physical (bricks-and-mortar) retail stores are
1. increasing.
2. decreasing.
3. moving up along the original demand curve.
4. moving down along the original demand curve.
Supply
Supply describes what
P
sellers are willing and Supply (Curve)
able to do at different
prices P1

As price goes up,


quantity supplied goes P2
up; vice versa.
The law of supply
Why would it hold?
Q1 Q2 Q
Shifts of the Supply Curve
Supply (current) will increase if
1. input prices
go down
2. production technology
improves
3. the number and scale of sellers
increase
4. sellers expect the future price to
go down
input price
If the price of mango
P
goes up, the supply of Supply (Curve)
mango ice will
1. Increase; shift to its P1
right
2. Decrease; shift to its
left P2

3. Remain unchanged

Q1 Q2 Q
Minimum wage (*)
After news reporting
lower-than-required
wage rate paid to part-
time working students
in Pingtung, the number
of shops in the
neighborhood will
1. Drop
2. Expand
3. Remain unchanged
technology
If it costs more to raise
P
chicken laying brown Supply (Curve)
eggs than those laying
white ones, the supply P1
of brown eggs will be
____ that of white ones.
P2
1. bigger than
2. smaller than
3. the same as
Q1 Q2 Q
Future expectation
Foreseeing higher market price for vegetables
after typhoon, the supply of vegetables (that
can be preserved without much cost) before
typhoon (compared to regular days) will
1. move to its right.
2. move to its left.
3. move up along the original supply curve.
4. remain unchanged.
Reality check?
Taiwan to hike cigarette
tax by NT$20 per pack.

Whats the likely impact


of cigarette tax on its
supply?
Competitive Equilibrium
Price adjustment

eliminates imbalance
Supply
between D and S
Competitive Equilibrium 1
price/quantity
Surplus; excess supply 2
(1 )
Shortage; excess Demand
demand (2 )

Equilibrium ( )
Comparative Statics
Comparative Statics:
Evaluate impacts on the market equilibrium from
changes in the environment (ex: factors of
demand/supply)
Display possible differences in equilibria for
markets (models) with distinct properties
Higher demand for healthier brown eggs

(more brown eggs will be sold in the market)


Lower supply for higher-cost brown eggs

(fewer brown eggs will be sold in the market)


Question
Why are brown eggs more
expensive than white eggs
while fewer of them are
sold in the market?
Because brown eggs
1. are healthier .
2. cost more as its more
difficult to raise those
chicken laying brown
eggs
Green vs red bell pepper
4.4 Supply and Demand in Equilibrium
Curve Shifting in Competitive Equilibrium

Ready for another one?

Why do the price of roses


increase right before
Valentines Day?
1. Demand pulled
2. Supply pushed
(more roses are sold in the market)
2015 Pearson Education, Ltd.
4.4 Supply and Demand in Equilibrium
Curve Shifting in Competitive Equilibrium
Change in Demand for Roses

(more roses are sold in the market)


2015 Pearson Education, Ltd.
4.4 Supply and Demand in Equilibrium
Curve Shifting in Competitive Equilibrium

Then why doesnt the


price of beer increase
right before Super
Bowl Sunday?

2015 Pearson Education, Ltd.


4.4 Supply and Demand in Equilibrium
Curve Shifting in Competitive Equilibrium

Change in both Demand and Supply for Beer

2015 Pearson Education, Ltd.


Passenger vehicle sales
As personal income has expanded quickly in
mainland china, amount of passenger cars
sold there likely will
1. increase.
2. decrease.
3. remain unchanged.
Passenger and commercial vehicle
sales in China

What about car prices?


The price of cabbage
The price of cabbage dived this winter due to
many reasons. What is the likely impact on its
equilibrium price and quantity from a upcoming
cold snap when more people would go for hot
pot?
1. Both will go up.
2. Both will go down.
3. Price will go up but quantity will go down.
4. Price will go down but quantity will go up.
Reality in cabbage market

1. Is the price hike of vegetables before typhoon due


to increase in demand or decrease in supply?
2. Why would veg price fluctuates so dramatically?
Realities check
Supermarkets ration
vegetables as extreme
weather hits supplies -
sparking #LettuceCrisis
jokes
Why wouldnt retailers
raise their price to
balance the excess
demand??????
Taiwan legislator blames government
for tanking cabbage prices
Typhoons late in the year, and unusually warm temperatures in September and October, have cut
the production volume and quality of cabbages in Taiwan, forcing farmers to ramp up the use of
nitrogen fertilizers for crops, which has led to an unpleasant taste in the harvest that some
described as having an "ammonia-flavor".
Across Taiwan, restaurants and consumers stopped buying the vegetable as the price had increased
more than 500%. A head of cabbage that normally fetches around NT$40 was sold for NT$200 to
NT$300 last September and October.
To correct the low supply, and to take advantage of the market, businesses had increased their
import of cabbages and farmers increased production. With more cabbages on the market, prices
collapsed like an avalanche, and now one head is worth as little as NT$10 less than 10 percent of
last year's high.
Last year, they had nothing to sell when the prices were high; now, they are stuck with cabbages
they will probably sell without a profit or even at a loss.
Kuomintang Legislator, Chang Li-shan, has criticized the government for failing to curb cabbage
price by monitoring the import and planting of the vegetable. She pointed out that after the price
of cabbage skyrocketed, farmers dedicated over 300 hectares to the crop, far more than the typical
180 hectares.
source: chinapost.com.tw
Financial guidance
A freshly announced better-than-expected
guidance of a company for the coming
quarters likely will
1. lift its stock price.
2. lower its stock price.
3. have no impact on its stock price.
Impact of Bird flu (Avian influenza) on
chicken price
Short-term effect
Direct impact?
After nationwide ban on the shipping and
slaughtering of poultry?
http://www.taiwannews.com.tw/en/news/309911
0
Long-term effect
http://www.businessmirror.com.ph/expect-
higher-prices-of-chicken-products-as-government-
implements-measures-to-keep-phl-bird-flu-free/
Insurance for Part-time employees
The Ministry of Education and the Ministry of
Labor have demanded that universities must pay
labor insurance fees for a student working part-
time on campus. As a consequence, the number
of employed part-time students will
1. go up.
2. drop.
3. remain unchanged.

http://www.taipeitimes.com/News/editorials/arc
hives/2015/08/15/2003625379
Conclusion
Price will eliminate imbalances between
supply and demand if its flexible.
Determinants of demand (supply) refers to
factors other than its own price causing
impact to the demand (supply).
From the impacts in demand/supply, we can
expect its consequence in market; from the
transition in market, we can sort out the
possible main causes for its change.