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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Week 1 Introduction Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS EC1101E January 26, 2020 Guillem Riambau. Introduction to

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Week 1 – Introduction

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply.

NUS – EC1101E

January 26, 2020

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 1 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 1 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 1 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 1 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 2 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Some useful reminders

All materials are posted on LumiNUS: Weekly readings are here Pre-lecture videos are here Problem sets (for tutorials) are here Next week two tutorials for everyone. Tuesday AND either Thursday or Friday.

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 2 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Some useful reminders

All materials are posted on LumiNUS: Weekly readings are here Pre-lecture videos are here Problem sets (for tutorials) are here Next week two tutorials for everyone. Tuesday AND either Thursday or Friday. Recall attendance is compulsory

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 2 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 2 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 2 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Goals

By the end of this lecture you should... ...understand what can affect consumers’ demand for a good ...understand what can affect producers’ supply for a good ...be able to tell what happens in market prices and quantities purchased after observing a change (i.e., how are prices determined)

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 3 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Key concepts

Demand vs. quantity demanded Law of demand Supply vs. Quantity supplied Law of supply

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 4 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Preliminaries: a note on markets

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 5 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Preliminaries: a note on markets

Why are doctors paid so much? Why do coins have ridges?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 6 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Preliminaries: a note on markets

(Imaginary) Space where buyers and sellers carry out their transactions Perfectly competitive markets

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 7 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Preliminaries: a note on markets

(Imaginary) Space where buyers and sellers carry out their transactions Perfectly competitive markets

Goods are standardized There’s always another seller next door / there’s always another buyer down the line Prices are given

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 7 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Preliminaries: a note on markets

(Imaginary) Space where buyers and sellers carry out their transactions Perfectly competitive markets

Goods are standardized There’s always another seller next door / there’s always another buyer down the line Prices are given

Perhaps not fully realistic But most markets are close to perfectly competitive Our models are useful to explain market dynamics

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 7 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Goal: understand prices and quantities sold/bought

Step 1. How much are consumers willing to pay? Step 2. How much are producers willing to sell? Step 3. What happens when they meet.

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 8 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 8 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 8 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 8 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 8 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 9 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Diminishing returns Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 9 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 10 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 11 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Law of Demand

Law of Demand The law of demand states that when the price of a good rises and everything else remains the same, the quantity of the good demanded will fall.

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 11 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Law of Demand

Law of Demand The law of demand states that when the price of a good rises and everything else remains the same, the quantity of the good demanded will fall. ⇒ Demand curves are downward sloping

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 11 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 11 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 11 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 11 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 11 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 12 / 45

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Demand = Quantity demanded

Quantity Demanded The quantity demanded of a good or service is the number

  • f units that all buyers in a market would choose to buy over

a given time period, given the constraints that they face. Demand refers to the list of different quantities demanded at different prices, with all other variables that affect the demand decision assumed constant Demand refers to the entire relationship between price and quantity demanded, represented by the entire demand curve

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 12 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects demand?

Tastes and preferences

details

Consumers’ wealth and income

details

Normal goods Inferior goods

Price of related goods

details

Complements Substitutes

Population

details

Expected (future) prices

details Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 13 / 45

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Demand = Quantity demanded

Change in demand ⇒ Curve shifts

Related to all changes expect for changes in the price of the good

Change in Quantity demanded ⇒ Movement along the curve

Related only to changes in the price of the good

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 14 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Goal: understand prices and quantities sold/bought

Step 1. How much are consumers willing to pay? Step 2. How much are producers willing to sell? Step 3. What happens when they meet.

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 15 / 45

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Law of Supply

Law of Supply The law of supply states that when the price of a good rises, and everything else remains the same, the quantity of the good supplied will rise. cc

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 16 / 45

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Law of Supply. One example: durian plantation

Price of durian in Singapore ↑. What are you –as a plantation

  • wner in Malaysia– going to do?

Shift all your stocks towards Singapore Hire more people to collect durians more intensively If needed, hire cars and trucks to transport them etc. If a good becomes very profitable, producers will want to divert resources to it

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 17 / 45

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Supply = Quantity Supplied

Quantity Supplied The market quantity supplied is the amount of a good or service that all producers together would offer for sale at each price, given the constraints they face. Supply Curve The supply curve shows the relationship be- tween the price

  • f

a good and the quan- tity supplied in the market, holding constant the values of all other variables that affect supply. Each point on the curve shows the quantity that sellers would choose to sell at a specific price.

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 18 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices Prices of alternative goods produced by the company Technology Number of firms Expected (future) price Weather and other natural events

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 19 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓,

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑,

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Technology

If I can separate rotten tomatoes from good ones faster,

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Technology

If I can separate rotten tomatoes from good ones faster, ⇒ Supply shifts right

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Technology

If I can separate rotten tomatoes from good ones faster, ⇒ Supply shifts right

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Technology

If I can separate rotten tomatoes from good ones faster, ⇒ Supply shifts right

Number of firms ⇒ Supply shifts right

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Technology

If I can separate rotten tomatoes from good ones faster, ⇒ Supply shifts right

Number of firms ⇒ Supply shifts right Expected (future) price

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Technology

If I can separate rotten tomatoes from good ones faster, ⇒ Supply shifts right

Number of firms ⇒ Supply shifts right Expected (future) price

If pe umbrellas ↑,

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Technology

If I can separate rotten tomatoes from good ones faster, ⇒ Supply shifts right

Number of firms ⇒ Supply shifts right Expected (future) price

If pe umbrellas ↑, ⇒ hold on to stock to sell them later ⇒ Supply shifts left

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Technology

If I can separate rotten tomatoes from good ones faster, ⇒ Supply shifts right

Number of firms ⇒ Supply shifts right Expected (future) price

If pe umbrellas ↑, ⇒ hold on to stock to sell them later ⇒ Supply shifts left

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

What affects supply?

Input prices

If price of flour ↓, ⇒ Supply of muffins ↑

Prices of alternative goods produced by the company

If price of running shoes ↑, ⇒ Supply of running shorts ↓

Technology

If I can separate rotten tomatoes from good ones faster, ⇒ Supply shifts right

Number of firms ⇒ Supply shifts right Expected (future) price

If pe umbrellas ↑, ⇒ hold on to stock to sell them later ⇒ Supply shifts left

Weather and other natural events

Drought ⇒ crop yields ↓ ⇒ Supply of rice shifts left

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 20 / 45

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Supply = Quantity Supplied

When prices change − → We move along the curve When anything but prices changes − → The curve shifts

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 21 / 45

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Goal: understand prices and quantities sold/bought

Step 1. How much are consumers willing to pay? Step 2. How much are producers willing to sell? Step 3. What happens when they meet: market equilibrium

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 22 / 45

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What are the final price and quantity for a given good?

Equilibrium price and equilibrium quantity The equilibrium price and equilibrium quantity are values for price and quantity in the market that, once achieved, will remain constant–unless and until the supply curve or the de- mand curve shifts.

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 23 / 45

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Market equilibrium

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 24 / 45

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Equilibrium

What is the equilibrium price? What if the price is below equilibrium? What if the price is above equilibrium?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 25 / 45

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Equilibrium

What is the equilibrium price?

Price such that supply meets demand

There is no excess supply There is no excess demand

What if the price is below equilibrium?

Excess Demand

What if the price is above equilibrium?

Excess Supply Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 26 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K! Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 27 / 45

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Some questions

Flights to Wuhan COE in SGP Grab on Rainy Friday

ss

Conference in cold places Want prices to increase? Muffin iPhone Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 27 / 45

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What is the effect of limited supply on the price of goods?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 28 / 45

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On positional goods

Positional good: valued because is not possessed by others Scarcity makes them pricey ⇒ many consumers “fighting” for it More examples?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 29 / 45

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What can affect the price of a muffin?

Option 1 Option 2 (harder) Option 3

ss

Option 4 Option 5 Option 6

ss

Option 7 Option 8 Option 9 Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 30 / 45

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Remarks

Demand = Quantity demanded Shifting the curve = moving along the curve When “something changes”, how does that affect equilibrium price and quantities?

1 Which curve is affected? 2 How does it shift? (in what direction?) 3 What is the overall effecte?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 31 / 45

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Next week

Tutorial Tuesday 28 & Thursday/Friday Welfare Economics: Consumer and producer surplus Elasticity All readings posted

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 32 / 45

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Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: 3 questions

Question 1 Question 2 Question 3 Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 33 / 45

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Kahoot: Question 1

What happens to the market for kankong when a new MOH study reveals it has immense unknown antidetox properties?

1 p∗ ↑, q∗ ↑ 2 p∗ (?), q∗ ↑ 3 p∗ (?), q∗ (?) 4 p∗ ↑, q∗ (?)

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 34 / 45

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Kahoot: Question 1

What happens to the market for kankong when a new MOH study reveals it has immense unknown antidetox properties?

1 p∗ ↑, q∗ ↑ (Why? Demand shifts right) 2 p∗ (?), q∗ ↑ 3 p∗ (?), q∗ (?) 4 p∗ ↑, q∗ (?)

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 35 / 45

slide-90
SLIDE 90

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 2

What happens to the market of muffins if (a) flour price increases (b) students’ income increases?

1 p∗ ↑, q∗ ↑ 2 p∗ (?), q∗ ↑ 3 p∗ (?), q∗ (?) 4 p∗ ↑, q∗ (?)

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 36 / 45

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SLIDE 91

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 2

What happens to the market of muffins if (a) flour price increases (b) students’ income increases?

1 p∗ ↑, q∗ ↑ 2 p∗ (?), q∗ ↑ 3 p∗ (?), q∗ (?) 4 p∗ ↑, q∗ (?)

  • (Why? See next slide)

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 37 / 45

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SLIDE 92

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 2

What happens to the market of muffins if (a) flour price increases?

This affects supply. Supply shifts left.

What happens to the market of muffins if (b) students’ income increases?

This affects demand. Demand shifts right.

What’s the overall effect?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 38 / 45

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SLIDE 93

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 2

Note that depending on the size of each effect we may have that quantity in equilibrium increases, decreases, or stays the same. Without further information on the size of each effect, we cannot tell. Note, however, that we know for sure that price will increase, regardless of the sizes. back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 39 / 45

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SLIDE 94

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 3

What happens in the market for winter jackets if (a) Siberian cold wave expected (b) price of jumpers decreases?

1 p∗ ↑, q∗ ↑ 2 p∗ (?), q∗ ↑ 3 p∗ (?), q∗ (?) 4 p∗ ↑, q∗ (?)

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 40 / 45

slide-95
SLIDE 95

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 3

What happens in the market for winter jackets if (a) Siberian cold wave expected (b) price jumpers decreases

1 p∗ ↑, q∗ ↑ 2 p∗ (?), q∗ ↑ 3 p∗ (?), q∗ (?)

  • (Why? See next slide)

4 p∗ ↑, q∗ (?)

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 41 / 45

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SLIDE 96

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 3

What happens to the market of jackets if (a) Siberian cold wave expected?

This affects demand. Demand shifts right, as people will want to pay more for jackets now.

What happens to the market of jackets if (b) price of jumpers decreases?

This affects demand. Demand shifts left, as people will want to pay less for jackets now, since a close substitute like jumpers has become cheaper.

Which effect will dominate? Without further information, we do not know. So we cannot be precise about the overall

  • effect. Next three slides illustrate this.

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 42 / 45

slide-97
SLIDE 97

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 3

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 43 / 45

slide-98
SLIDE 98

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 3

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 44 / 45

slide-99
SLIDE 99

Preliminaries Markets Demand Supply Equilibrium Questions Remarks K!

Kahoot: Question 3

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 45 / 45

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SLIDE 100

Option 1: Cereals

Suppose price of flour from Australia rises. What happens to the market of muffins in Singapore?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 46 / 45

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SLIDE 101

Option 1: Cereals

Suppose price of flour from Australia rises. What happens to the market of muffins in Singapore? cc Flour is input for muffins. Price of flour ↑ ⇒ Supply of muffins shifts left ⇒ Price of muffins ↑

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 46 / 45

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SLIDE 102

Option 2: Sugar beets

Suppose there are massive floods in Turkey

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 47 / 45

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SLIDE 103

Option 2: Sugar beets

Suppose there are massive floods in Turkey ⇒ ⇒

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 47 / 45

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SLIDE 104

Option 3:

Suppose price of oil for naval engines decreases

What happens to the market of sugar in Singapore? Supply of sugar increases (easier to transport sugar) ⇒ Supply

  • f sugar shifts right

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 48 / 45

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SLIDE 105

Option 3:

Suppose price of oil for naval engines decreases

What happens to the market of sugar in Singapore? Supply of sugar increases (easier to transport sugar) ⇒ Supply

  • f sugar shifts right

What happens, as a result, to the market of muffins in Singapore?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 48 / 45

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SLIDE 106

Option 3:

Suppose price of oil for naval engines decreases

What happens to the market of sugar in Singapore? Supply of sugar increases (easier to transport sugar) ⇒ Supply

  • f sugar shifts right

What happens, as a result, to the market of muffins in Singapore? ⇒ Price of sugar decreases (ton convince yourselves, draw a graph)

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 48 / 45

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SLIDE 107

Option 3:

Suppose price of oil for naval engines decreases

What happens to the market of sugar in Singapore? Supply of sugar increases (easier to transport sugar) ⇒ Supply

  • f sugar shifts right

What happens, as a result, to the market of muffins in Singapore? ⇒ Price of sugar decreases (ton convince yourselves, draw a graph) ⇒ Sugar is an input for muffins. Hence, supply of muffins shifts right

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 48 / 45

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SLIDE 108

Option 3:

Suppose price of oil for naval engines decreases

What happens to the market of sugar in Singapore? Supply of sugar increases (easier to transport sugar) ⇒ Supply

  • f sugar shifts right

What happens, as a result, to the market of muffins in Singapore? ⇒ Price of sugar decreases (ton convince yourselves, draw a graph) ⇒ Sugar is an input for muffins. Hence, supply of muffins shifts right ⇒ Price ↓ and quantity ↑

(graphs next slide) back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 48 / 45

slide-109
SLIDE 109

⇒ Sugar is input for muffins. Price of sugar ↓ ⇒ Supply of muffins shifts right

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 49 / 45

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SLIDE 110

Option 4:

Suppose new technology allows for muffins to be produced more efficiently. What will the effect be?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 50 / 45

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SLIDE 111

Option 4:

Suppose new technology allows for muffins to be produced more efficiently. What will the effect be? If effects the Supply curve The supply curve shifts right: more muffins can be produced at the same cost Equilibrium price decreases Quantity increases

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 50 / 45

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SLIDE 112

Option 5:

Trump’s politics result in a slowdown of international trade. What would happen? Since sugar and other inputs are imported, less of those products will be available. The situation would be very similar to the one with

sugarbeets back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 51 / 45

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SLIDE 113

Option 6:

Suppose workers’ wages increase. What will the effect be?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 52 / 45

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SLIDE 114

Option 6:

Suppose workers’ wages increase. What will the effect be? If effects the Supply curve The supply curve shifts left: fewer muffins can be produced at the same cost Equilibrium price increases Quantity decreases

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 52 / 45

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SLIDE 115

Option 7:

Suppose the price of milk increases and milk & muffins are

  • complements. What will the effect be?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 53 / 45

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SLIDE 116

Option 7:

Suppose the price of milk increases and milk & muffins are

  • complements. What will the effect be?

If effects the Demand curve The demand curve shifts right: people will be willing to pay more for muffins now Equilibrium price increases Quantity increases

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 53 / 45

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SLIDE 117

Option 8:

Note: previous research has shown that people tend to reward themselves with “unhealthy”/caloric food after carrying out demanding tasks Suppose profs in FASS increase the in-class and homework

  • load. What will the effect be?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 54 / 45

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SLIDE 118

Option 8:

Note: previous research has shown that people tend to reward themselves with “unhealthy”/caloric food after carrying out demanding tasks Suppose profs in FASS increase the in-class and homework

  • load. What will the effect be?

If effects the Demand curve The demand curve shifts right: students will be willing to pay more for muffins now Equilibrium price increases Quantity increases

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 54 / 45

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SLIDE 119

Option 9:

Suppose the price of Oreos increases and milk & muffins are

  • substitutes. What will the effect be?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 55 / 45

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SLIDE 120

Option 9:

Suppose the price of Oreos increases and milk & muffins are

  • substitutes. What will the effect be?

If effects the Demand curve The demand curve shifts left: people will be willing to pay less for muffins now Equilibrium price decreases Quantity decreases

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 55 / 45

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SLIDE 121

Diminishing returns

Note: the more muffins the better... ... but the more they have, the less they are willing to pay for them This is what we call diminishing returns: since each additional muffin provides them with a smaller sense of utility, they want to pay less for this In economics we typically assume diminishing returns for all goods and services.

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 56 / 45

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SLIDE 122

Tastes and preferences

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 57 / 45

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SLIDE 123

Tastes and preferences

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 58 / 45

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SLIDE 124

Tastes and preferences

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 59 / 45

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SLIDE 125

Consumers’ wealth and income

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 60 / 45

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SLIDE 126

Consumers’ wealth and income

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 61 / 45

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SLIDE 127

Consumers’ wealth and income

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 62 / 45

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SLIDE 128

Consumers’ wealth and income

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 63 / 45

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SLIDE 129

Consumers’ wealth and income

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 64 / 45

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SLIDE 130

Consumers’ wealth and income

Sometimes when income ↑, demand for a given good ↓ Can you think of an example? Why is that the case?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 65 / 45

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SLIDE 131

Consumers’ wealth and income

Sometimes when income ↑, demand for a given good ↓ Can you think of an example? Why is that the case? Rice, bread, noodles People switch away to buy other foods

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 65 / 45

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SLIDE 132

Consumers’ wealth and income

Normal goods: income ↑, demand ↑ Inferior goods: income ↑, demand ↓

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 66 / 45

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SLIDE 133

Price of related goods

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 67 / 45

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SLIDE 134

Price of related goods

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 68 / 45

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SLIDE 135

Price of related goods

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 69 / 45

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SLIDE 136

Population

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 70 / 45

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SLIDE 137

Expected (future) prices

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 71 / 45

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SLIDE 138

Expected (future) prices

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 72 / 45

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SLIDE 139

Expected (future) prices

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 73 / 45

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SLIDE 140

Expected (future) prices

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 74 / 45

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SLIDE 141

Excess Supply

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 75 / 45

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SLIDE 142

Excess Demand

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 76 / 45

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SLIDE 143

Excess Demand

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 77 / 45

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SLIDE 144

Excess Demand

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 78 / 45

slide-145
SLIDE 145

Excess Demand

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 79 / 45

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SLIDE 146

Excess Supply

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 80 / 45

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SLIDE 147

Excess Supply

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 81 / 45

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SLIDE 148

Excess Supply

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 82 / 45

slide-149
SLIDE 149

Excess Supply

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 83 / 45

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SLIDE 150

Wuhan flights

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 84 / 45

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SLIDE 151

COE in Singapore

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 85 / 45

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SLIDE 152

Gran on rainy Friday evenings

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 86 / 45

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SLIDE 153

Why to hold events in cold cities

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 87 / 45

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SLIDE 154

Want prices to increase?

Suppose you sell jeans Convince everyone that the price of jeans will dramatically increase next month

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 88 / 45

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SLIDE 155

Want prices to increase?

Suppose you sell jeans Convince everyone that the price of jeans will dramatically increase next month What will happen? Everyone will rush to buy jeans now. Effect?

Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 88 / 45

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SLIDE 156

frametitle

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 89 / 45

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SLIDE 157

iPhones

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 90 / 45

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SLIDE 158

Why are muffins more expensive in the CBD than at NUS?

back to slides Guillem Riambau. Introduction to Economic Analysis: Demand and Supply. NUS – EC1101E Week 1 – Introduction 91 / 45