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Economie voor MAWBsc Personeelwetenschappen
2020/2021
Lecture 1-4 Macro-economy
, Lecture 1 – 13/4
Demand Curve
Demand curve: the relationship between demand and price
Shift of the demand curve: change in quantity demanded at any given price (keeping price constant).
Movement along demand curve: a change in quantity demanded due to a change in price.
What causes a Demand Curve to Shift?
Changes in tastes (e.g. Rolling Stones, smartphones)
Changes in the prices of related goods:
- Substitutes: rise in price of good 1 increases demand for good 2
- Complements: rise in price of good 1 decreases demand for good 2
Changes in income:
- Normal Goods: rise in income increases demand
- Inferior Goods: rise in income decreases demand
Changes in expectations (e.g. stock market)
Other factors: consumers, weather; all factors affecting willingness to pay of consumers
Consumer surplus & the Demand Curve
How much do buyers on a market gain form the existence of the market? (welfare)
Individual consumer surplus is the net gain to an individual buyer from the purchase of a
good. It is equal to the difference between the buyer’s willingness to pay and the price paid.
Total consumer surplus in a market is the sum of the individual consumer surpluses of all the
buyers of a good.
The total consumer surplus generated by purchases of a good at a given price
is equal to the area below the demand curve but above that price.
A decrease in price increases consumer surplus
(consumers pay a lower price better off)
,The supply curve
Supply Curve: relationship quantity supplied and price. Shows how much
people are willing to sell/supply at different prices.
A shift in the supply curve: change in the quantity supplied at any give
price (keeping price constant).
Movement along curve: change in the quantity supplies as a result of a
change in the price.
What causes a Supply Curve to shift?
Changes in tastes (e.g. Rolling Stones)
Changes in input prices (less costly = more supply)
- An input is a good that is used to produce another good (e.g. airplane fuel)
Change in Technology
- Turn inputs to output more efficiently
Changes in expectations
- Expect stock price to rise = less supplied
Other: weather/climate; number of producers; factors that affect the willingness to
sell/accept
Producer Surplus and the Supply Curve
How much do sellers on a market gain from the existence of the market? (welfare)
Individual producer surplus is the net gain to a seller from selling a good. It is equal to the
difference between the price received and the seller’s cost.
Total producer surplus in a market is the sum of the individual producer surpluses of all the
sellers of a good.
Opportunity cost are the cost of any activity measured in terms of the value of the best alternative
that is not chosen.
The total Producer Surplus from sales of a good at a given price is the
area above the supply curve but below that price.
An increase in price increases Producer Surplus
, Market Equilibrium
Market Equilibrium is where the Demand and Supply models meet.
The price above its Equilibrium Level creates a Surplus
Excess supply; incentive to reduce the price
The price below its Equilibrium Level creates a Shortage
Excess demand; incentive to increase price
Markets price moves towards equilibrium price
Equilibrium and Shifts of the Demand Curve
An increase in demand leads to a movement along the supply
curve to a higher equilibrium price and higher equilibrium
quantity.
An increase in supply leads to a movement along the demand
curve to a lower equilibrium price and higher equilibrium
quantity.
Simultaneous Shifts of the Demand and Supply Curves
When demand increases and supply decreases, the price rises,
but the change in quantity is ambiguous.
Consumer Surplus, Producer Surplus & Efficiency of Markets
In competitive markets, the maximum possible total surplus (highest possible gain to society)
is achieved at the market equilibrium.
In the market equilibrium there is no way to make some people better off without others
worse off competitive markets are efficient.
“Proof”: is there a way to reallocate goods or change the quantity traded such that total
surplus increases?
Total Surplus generated in a market is the total net gain to consumers and
producers from trading in the market. It is the sum of the producer and the
consumer surplus.
The market allocates consumption of the good to the potential buyers
who value it the most.
The market allocates sales to the potential sellers who value right to
sell the good most.
Changing the Quantity lowers Total Surplus
The market ensures that every consumer who makes a purchase values the good more than
every seller who makes a sale all transactions are mutually beneficial.
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