【经济课件】Ch02 THE BASICS OF SUPPLY AND DEMAND.doc
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1、CHAPTER 2THE BASICS OF SUPPLY AND DEMANDTEACHING NOTESThis chapter reviews the basics of supply and demand that students should be familiar with from their introductory economics class. The instructor can choose to spend more or less time on this chapter depending on how much of a review the student
2、s require. This chapter departs from the standard treatment of supply and demand basics found in most other intermediate microeconomics textbooks by discussing some of the worlds most important markets (wheat, gasoline, and automobiles) and teaching students how to analyze these markets with the too
3、ls of supply and demand. The real-world applications of this theory can be enlightening for students.Some problems plague the understanding of supply and demand analysis. One of the most common sources of confusion is between movements along the demand curve and shifts in demand. Through a discussio
4、n of the ceteris paribus assumption, stress that when representing a demand function (either with a graph or an equation), all other variables are held constant. Movements along the demand curve occur only with changes in price. As the omitted factors change, the entire demand function shifts. It ma
5、y also be helpful to present an example of a demand function that depends not only on the price of the good, but also on income and the price of other goods directly. This helps students understand that these other variables are actually in the demand function, and are merely lumped into the interce
6、pt term of the simple linear demand function. Example 2.9 includes an example of a demand and supply function which each depend on the price of a substitute good. Students may also find a review of how to solve two equations with two unknowns helpful. In general, it is a good idea at this point to d
7、ecide on the level of math that you will use in the class. If you plan to use a lot of algebra and calculus it is a good idea to introduce and review it early on. To stress the quantitative aspects of the demand curve to students, make the distinction between quantity demanded as a function of price
8、, Q = D(P), and the inverse demand function, where price is a function of the quantity demanded, P = D -1(Q). This may clarify the positioning of price on the Y-axis and quantity on the X-axis.Students may also question how the market adjusts to a new equilibrium. One simple mechanism is the partial
9、-adjustment cobweb model. A discussion of the cobweb model (based on traditional corn-hog cycle or any other example) adds a certain realism to the discussion and is much appreciated by students. If you decide to write down the demand function so that income and other prices are visible variables in
10、 the demand function, you can also do some interesting examples, which explore the linkages between markets and how changes in one market affect price and quantity in other markets.Although this chapter introduces demand, income, and cross-price elasticities, you may find it more appropriate to retu
11、rn to income and cross-price elasticity after demand elasticity is reintroduced in Chapter 4. Students invariably have a difficult time with the concept of elasticity. It is helpful to explain clearly why a firm may be interested in estimating elasticity. Use concrete examples. For example, a Wall S
12、treet Journal article back in the spring of 1998 discussed how elasticity could be used by the movie industry so that different movies could have different ticket prices. This example tends to go over well as college students watch a lot of movies. This type of discussion can also be postponed until
13、 revenue is discussed.QUESTIONS FOR REVIEW1. Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level?Assume the supply curve is fixed. The unusually hot weather will cause a rightward shift in
14、 the demand curve, creating short-run excess demand at the current price. Consumers will begin to bid against each other for the ice cream, putting upward pressure on the price. The price of ice cream will rise until the quantity demanded and the quantity supplied are equal.Figure 2.12. Use supply a
15、nd demand curves to illustrate how each of the following events would affect the price of butter and the quantity of butter bought and sold:a.An increase in the price of margarine.Most people consider butter and margarine to be substitute goods. An increase in the price of margarine will cause peopl
16、e to increase their consumption of butter, thereby shifting the demand curve for butter out from D1 to D2 in Figure 2.2.a. This shift in demand will cause the equilibrium price to rise from P1 to P2 and the equilibrium quantity to increase from Q1 to Q2.Figure 2.2.ab.An increase in the price of milk
17、.Milk is the main ingredient in butter. An increase in the price of milk will increase the cost of producing butter. The supply curve for butter will shift from S1 to S2 in Figure 2.2.b, resulting in a higher equilibrium price, P2, covering the higher production costs, and a lower equilibrium quanti
18、ty, Q2.Figure 2.2.bNote: Given that butter is in fact made from the fat that is skimmed off of the milk, butter and milk are joint products. If you are aware of this relationship, then your answer will change. In this case, as the price of milk increases, so does the quantity supplied. As the quanti
19、ty supplied of milk increases, there is a larger supply of fat available to make butter. This will shift the supply of butter curve to the right and the price of butter will fall.c.A decrease in average income levels.Assume that butter is a normal good. A decrease in the average income level will ca
20、use the demand curve for butter to shift from D1 to D2. This will result in a decline in the equilibrium price from P1 to P2, and a decline in the equilibrium quantity from Q1 to Q2. See Figure 2.2.c.Figure 2.2.c3. If a 3-percent increase in the price of corn flakes causes a 6-percent decline in the
21、 quantity demanded, what is the elasticity of demand?The elasticity of demand is the percentage change in the quantity demanded divided by the percentage change in the price. The elasticity of demand for corn flakes is . This is equivalent to saying that a 1% increase in price leads to a 2% decrease
22、 in quantity demanded. This is in the elastic region of the demand curve, where the elasticity of demand exceeds -1.0.4. Explain the difference between a shift in the supply curve and a movement along the supply curve.A movement along the supply curve is caused by a change in the price or the quanti
23、ty of the good, since these are the variables on the axes. A shift of the supply curve is caused by any other relevant variable that causes a change in the quantity supplied at any given price. Some examples are changes in production costs and an increase in the number of firms supplying the product
24、.5. Explain why for many goods, the long-run price elasticity of supply is larger than the short-run elasticity.The elasticity of supply is the percentage change in the quantity supplied divided by the percentage change in price. An increase in price induces an increase in the quantity supplied by f
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