Gasoline Demand and Supply Analysis For each of the five topics, please find an article from your favorite news source that covers the material covered dur

Gasoline Demand and Supply Analysis For each of the five topics, please find an article from your favorite news source that covers the material covered during that week (e.g., in the zoom audio lectures, power point presentations, the written transcripts etc.) and explain in a paragraph or so how the article relates to that topic. Your grade will be assessed based upon the uniqueness of your analyses and article selection among other factorshttps://www.youtube.com/watch?v=tqL9MzHU8ww Supply/Demand
Slide 1
Overview of supply/demand
analysis
• Supply/Demand theory
» Overview of Demand/Supply
» Constructing a Demand/Supply function
» Applications of Supply/Demand Model
• Producer Surplus
• Consumer Surplus
• Wall Street Journal
• In-class Exercises
Slide 2
I. Demand/Supply Analysis
• Supply and Demand Curves simultaneously determine
equilibrium market price for many goods/services that may
be used by managers.
• Both address intentions:
» Demand curve: address intentions to purchase
(consumer or demand side)-the amount of good or
service that consumers are willing and able to purchase
from market
» Supply curve: address intentions to supply (producer or
supply side)-the amount of a good or service that
producers are willing to offer/supply to market
Slide 3
FIGURE 2.1 Demand and Supply
Determine the Equilibrium Market Price
Slide 4
Price Restrictions and Market
Equilibrium
•
•
In a free market, the equilibrium price is determined from simultaneous interaction of
supply and demand curves.
» Market forces determine the equilibrium price.
Sometimes, the government can place limits on how much prices rise or fall and these
restrictions can affect market equilibrium.
» Government imposed price ceiling-(generally imposed if government believes that
eq. price is “too high”)
• http://online.wsj.com/article/SB1000142405270230460420457518197386144
3214.html
> Chinese Government is confident that inflation is under control and so
they raise price of fuel by 320 Yuan in order to combat rising crude oil
prices. They still believe that equilibrium price is “too high” and so keep
price ceiling in place, but bring price closer to equilibrium price.
» Government imposed price floor-(generally imposed if government believes that
eq. price is “too low”)
• http://www.cato.org/pubs/pas/pa027.html
• Agricultural Subsidies for crop prices-(see “Market Support Prices” section)
Slide 5
Demand Curves
• Individual
Demand Curve
$/Q
$5
20 Q
the greatest quantity
of a good demanded
at each price the
consumers are
willing to buy,
holding other
influences constant
Slide 6
Slide 7
Jenny
+
Pete + … =
Market
• The Market
Demand Curve is
the horizontal sum of
the individual
demand curves.
4
3
7
[2.1] A demand function for hybrid cars:
• The Demand
Function includes Q = f( P, Ps, Pc, Y, A, AC N, PE, TA, T/S)
all variables that
influence the
quantity demanded
– +
–
+ + – + +
+
–
The signs below each variable indicate the
impact the variable has on Q (hybrid cars), as in
the partial impact of price on quantity, ∂Q/∂P 0. See Variable
definitions are on the next slide. See also
table 2.3.
Slide 16
Determinants of the Supply Function
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
price, P
input prices, PI, e.g., sheet metal
Price of unused substitute inputs, PUI, such as fiberglass
technological improvements, T
entry or exit of other auto sellers, EE
Accidental supply interruptions from fires, floods, etc., F
Costs of regulatory compliance, RC
Expected future changes in price, PE
Adjustment time period, TA
taxes or subsidies, T/S
Note: Anything that shifts supply can be included and varies for
different industries or products.
Slide 17
Slide 18
Demand/Supply: Simultaneous
Shifts
Supply
Demand
Increase
Increase
Decrease
Decrease
Price:???
Quantity: Increases
Price: Decreases
Quantity: ???
Price: Increases
Quantity: ???
Price: ???
Quantity: Decreases
Slide 19
Concept Check
• Open the spreadsheet titled, “Conceptual
Examples-SupplyDemand.xlsx”
• Open the sheet titled, “ConceptQ1”
Slide 20
Summary/Takeaways
•
•
•
•
•
•
We see a positive relationship between price and quantity supplied, the amount of a
good or service that producers are willing to offer for sale goes up as the price goes up,
ceteris Paribas
For most goods, we see an inverse relationship between price and quantity demanded,
the lower the price the higher the quantity-demanded, ceteris Paribas
» If raising the price leads to a higher quantity-demanded for a good, then its called a
Giffin good-e.g. some luxury goods.
A movement along the demand curve is called a change in the quantity demanded,
Ceteris Paribas, while a shift in the demand curve is called a shift in demand –analogous
for supply
Industry Demand-What are factors affecting the ability of all the firms in the industry to
gain/loss market share ? (Factors outside of the individual firm’s control)
Firm Demand-Factors that affect the ability of a single firm to grab market share?
(Factors within the individual firm’s control)
Analogous for supply curve
Slide 21
II. Constructing a
Demand/Supply Function
• Demand Schedule contains price of a good and quantity
sold of that good.
• Supply schedule contains price of a good a quantity
supplied of that good.
• To construct the demand/supply function, we start with
demand and supply schedule and graph the corresponding
function.
• If we are given the equation that relates price and quantity
demanded (or quantity supplied) then we can construct the
schedule and corresponding curve easily)
• Always remember to label your axes!!
Slide 22
Example of a Demand Schedule
Price of Jeans
Quantity of Jeans Sold (thousands
per year)
40
0
35
10
30
20
25
30
20
40
15
50
10
60
5
70
0
80
Slide 23
Constructing the Demand
Function
Annual Demand for Jeans
45
40
35
Price ($)
30
25
20
Annual Demand for Jeans
15
10
5
0
0
10
20
30
40
50
Quantity (thousands per year)
60
70
80
Slide 24
III. Applications of
Supply/Demand Functions
• Show how manager can use demand/supply curve in order to ascertain
the value a consumer/group of consumers receives from a product.
• Consumer Surplus-the value consumers get from a good but do not
have to pay for.
» This tool tells managers how much extra money consumers would
be willing to pay for a given amount of a purchased product.
• Producer Surplus-amount of money producers receive in excess of the
amount necessary to induce them to produce the good.
» This tool can tell managers how much extra money can be saved as
costs paid out to producers and still have them produce the good.
Slide 25
Consumer Surplus
• Consumer surplus allows managers to gauge the value
consumers get from consuming a good, but do not have to
pay for.
• It represents a surplus in value to the consumer.
• And so, armed with this knowledge a manager can devise
pricing strategies that can allow a manager to extract the
full value of that surplus to the consumer.
• Lets take a look at the worksheet titled, “Consumer
Surplus” in Applications of Demand.xls
Slide 26
Producer Surplus
• Analogous to Consumer Surplus
• Shows how a manager can use supply curve to ascertain maximum
amount he/she could save in costs by bargaining with supplier.
• It is represented by the difference between the following two
quantities.
» The maximum amount to be received from selling a certain
number of units.
» The total value to be received based on market prices-supply
curve.
• It is the area above the supply curve but below the market price of the
good.
• Lets take a look at the worksheet titled, “Producer Surplus” in the
Applications of Demand.xls spreadsheet.
Slide 27
Concept Check
• Producer Surplus
» a. is the value consumers get from a supplier
» b. is the value consumers do not pay because of
a discount by supplier
» c. is the value consumers get from a good but
do not pay for.
» d. none of the above
Slide 28
Wrapping it all up!
• 3 in-class exercises in spreadsheet titled,
“in-class ex-week3.xls”
Slide 29
Appendix A: So, how do we
obtain a demand curve, anyway?
• Demand curve shifters include, but are
not limited to, variables such as price of
substitute goods, consumer tastes, price
of complementary goods, and income.
• Consumption patterns
• Indifference curve analysis
Slide 30
Basics of indifference curve
analysis
Slide 31
Budget line
Slide 32
Consumer equilibrium
Slide 33
Demand Curve Derivation
Slide 34
Market Demand
• The market demand curve is the horizontal
summation of individual demand curves.
• It indicates the total quantity all consumers would
purchase at each price point.
$
Individual Demand
Curves
$
Market Demand Curve
50
40
D1
1 2
D2
DM
Q
1 2 3
Q
Slide 35
You are the manager of a midsized company that assembles personal computers.
You purchase most components-such as random access memory (RAM)–in a competitive market. Base
your marketing research, consumers earning over $75,000 purchase 1.3 times more RAM then consum
incomes. One morning, you pick up a copy of The Wall Street Journal and read an article indicating tha
breakthrough will permit manufacturers to produce RAM at a lower unit cost. Based on this informatio
to the price you pay for random access memory ? Would your answer change if, in addition to this tec
that consumers incomes are expected to grow over the next two years as the economy pulls out of re
er change if, in addition to this technological breakthrough, the article indicated
You are the manager of a midsized company that assembles personal computers.
You purchase most components-such as random access memory (RAM)–in a competitive market. Base
your marketing research, consumers earning over $75,000 purchase 1.3 times more RAM then consum
incomes. One morning, you pick up a copy of The Wall Street Journal and read an article indicating tha
breakthrough will permit manufacturers to produce RAM at a lower unit cost. Based on this informatio
to the price you pay for random access memory ? Would your answer change if, in addition to this tec
that consumers incomes are expected to grow over the next two years as the economy pulls out of re
consumers earning over $75,000 purchase 1.3 times more RAM then consumers with lower income-R
consumers incomes are expected to grow over the next two years as the economy pulls out of recessi
A technological breakthrough that reduces production costs will lead to a rightward shift in t
increases, the demand for RAM chips will also increase since they are a normal good. This increase in d
supply and demand on the equilibrium price of RAM chips is indeterminate. Depending on the relative

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