Microeconomics_4__Besanko

Microeconomics_4__Besanko


DisciplinaMicroeconomia I7.560 materiais205.743 seguidores
Pré-visualização50 páginas
offered, in total, 14 billion
bushels for sale, the highest price that the corn would fetch would be $3 per bushel.
Other factors besides price affect the quantity of a good demanded. The prices of
related goods, consumer incomes, consumer tastes, and advertising are among the fac-
tors that we expect would influence the demand for a typical product. However, the
demand curve focuses only on the relationship between the price of the good and the
quantity of the good demanded. When we draw the demand curve, we imagine that
all other factors that affect the quantity demanded are fixed.
The demand curve in Figure 2.2 slopes downward, indicating that the lower the
price of corn, the greater the quantity of corn demanded, and the higher the price of
corn, the smaller the quantity demanded. The inverse relationship between price and
quantity demanded, holding all other factors that influence demand fixed, is called the law
of demand. Countless studies of market demand curves confirm the inverse relation-
ship between price and quantity demanded, which is why we call the relationship a
law. Still, you might wonder about so-called luxury goods, such as perfume, designer
labels, or crystal. It is alleged that some consumers purchase more of these goods
at higher prices because a high price indicates superior quality.2 However, these ex-
amples do not violate the law of demand because all of the other factors influencing
demand for these goods are not held fixed while the price changes. Consumers\u2019 percep-
tions of the quality of these goods have also changed. If consumers\u2019 perceptions of
quality could be held constant, then we would expect that consumers would purchase
less of these luxury goods as the price goes up.
law of demand The 
inverse relationship between
the price of a good and the
quantity demanded, when
all other factors that influ-
ence demand are held
fixed.
2Michael Schudson, Advertising, The Uneasy Persuasion: Its Dubious Impact on American Society (New York:
Basic Books, 1984), pp. 113\u2013114. 
Suppose the demand for new automobiles
in the United States is described by the equation
(2.1)
where Qd is the number of new automobiles demanded
per year (in millions) when P is the average price of an
automobile (in thousands of dollars). (At this point, don\u2019t
worry about the meaning of the constants in equations
for demand or supply curves\u2013\u2013in this case, 5.3 and \ufffd0.1.)
Problem
(a) What is the quantity of automobiles demanded per
year when the average price of an automobile is $15,000?
When it is $25,000? When it is $35,000?
(b) Sketch the demand curve for automobiles. Does this
demand curve obey the law of demand?
Qd \ufffd 5.3 \ufffd 0.1P
Sketching a Demand Curve Solution
(a) To find the yearly demand for automobiles, given the
average price per car, use equation (2.1):
Average Price Using Equation (2.1) Quantity
per Car (P ) Demanded (Qd)
$15,000 Qd \ufffd 5.3 \ufffd 0.1(15) \ufffd 3.8 3.8 million cars
$25,000 Qd \ufffd 5.3 \ufffd 0.1(25) \ufffd 2.8 2.8 million cars
$35,000 Qd \ufffd 5.3 \ufffd 0.1(35) \ufffd 1.8 1.8 million cars
(b) Figure 2.3 shows the demand curve for automobiles.
To sketch it, you can plot the combinations of prices and
quantities that we found in part (a) and connect them
with a line. The downward slope of the demand curve in
Figure 2.3 tells us that as the price of automobiles goes
up, consumers demand fewer automobiles.
Similar Problems: 2.1, 2.2, 2.4 
L E A R N I N G - B Y- D O I N G E X E R C I S E 2 . 1
E
S
D
c02demandandsupplyanalysis.qxd 7/14/10 11:09 AM Page 31
32 CHAPTER 2 DEMAND AND SUPPLY ANALYSIS
SUPPLY CURVES
The curve labeled S in Figure 2.2 is the market supply curve for corn. It tells us the
total quantity of corn that suppliers of corn are willing to sell at different prices. For
example, the supply curve tells us that at a price of $3 per bushel, 9 billion bushels of
corn would be supplied in 2009, while at a price of $4 per bushel, 11 billion bushels
would be supplied in that year.
The supply of corn in the United States comes primarily from corn farmers
around the country. The available supply in a given year consists of corn that is har-
vested in that year plus corn that has been stored from previous harvests. We should
think of the supply curve S as being constructed from the sum of the supply curves of
all individual suppliers of corn in the United States.
The supply curve slopes upward, indicating that at higher prices, suppliers of corn
are willing to offer more corn for sale than at lower prices. The positive relationship
between price and quantity supplied is known as the law of supply. Studies of market
supply curves confirm the positive relationship between the quantity supplied and the
price, which is why we call the relationship a law.
As with demand, other factors besides price affect the quantity of a good that pro-
ducers will supply to the market. For example, the prices of factors of production\u2014
resources such as labor and raw materials that are used to produce the good\u2014will
affect the quantity of the good that sellers are willing to supply. The prices of other
goods that sellers produce could also affect the quantity supplied. For example, the
supply of natural gas goes up when the price of oil goes up, because higher oil prices
spur more oil production, and natural gas is a by-product of oil. When we draw a sup-
ply curve like the one in Figure 2.2, we imagine that all these other factors that affect
the quantity supplied are held fixed.
market supply curve
A curve that shows us the
total quantity of goods that
their suppliers are willing
to sell at different prices.
law of supply The pos-
itive relationship between
price and quantity supplied,
when all other factors that
influence supply are held
fixed.
factors of production
Resources such as labor
and raw materials that are
used to produce a good.
Quantity (millions of automobiles per year)
Pr
ic
e 
(th
ou
sa
nd
s o
f d
oll
ars
)
3.81.80 2.8
$35
$25
$15
D
FIGURE 2.3 The U.S.
Demand Curve for Automobiles
The law of demand holds in this 
market because the demand curve
slopes downward.
c02demandandsupplyanalysis.qxd 6/14/10 1:39 PM Page 32
2.1 DEMAND, SUPPLY, AND MARKET EQUILIBRIUM 33
equilibrium A point at
which there is no tendency
for the market price to
change as long as exoge-
nous variables remain 
unchanged.
Suppose the yearly supply of wheat in
Canada is described by the equation
(2.2)
where Qs is the quantity of wheat produced in Canada
per year (in billions of bushels) when P is the average
price of wheat (in dollars per bushel).
Problem
(a) What is the quantity of wheat supplied per year when
the average price of wheat is $2 per bushel? When the
price is $3? When the price is $4?
(b) Sketch the supply curve for wheat. Does it obey the
law of supply?
Qs \ufffd 0.15 \ufffd P
Sketching a Supply Curve
Solution
(a) To find the yearly supply of wheat, given the average
price per bushel, use equation (2.2):
Average Price Using Equation (2.2) Quantity
per Bushel (P) Supplied (Qs)
$2 Qs \ufffd 0.15 \ufffd 2 \ufffd 2.15 2.15 million bushels
$3 Qs \ufffd 0.15 \ufffd 3 \ufffd 3.15 3.15 million bushels
$4 Qs \ufffd 0.15 \ufffd 4 \ufffd 4.15 4.15 million bushels
(b) Figure 2.4 shows the graph of this supply curve. We
find it by plotting the prices and associated quantities
from part (a) and connecting them with a line. The fact
that the supply curve in Figure 2.4 slopes upward indi-
cates that the law of supply holds. 
L E A R N I N G - B Y- D O I N G E X E R C I S E 2 . 2
E
S
D
Quantity (billions of bushels per year)
Pr
ic
e 
(do
lla
rs 
pe
r b
u
sh
el
)
2.15 4.150 3.15
$4
$3
$2
S
FIGURE 2.4 The Supply Curve for
Wheat in Canada
The law of supply holds in this market be-
cause the supply curve slopes 
upward.
MARKET EQUILIBRIUM
In Figure 2.2, the