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Apple and the Demand for iPods. Learning Objectives. - PowerPoint PPT Presentation
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Fernando & Yvonn Quijano
Prepared by:
Chapter
3
Where Prices Come From: The Interaction of Demand and Supply
2 of 29© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Apple and the Demand for iPods
3.1 Discuss the variables that influence demand.
3.2 Discuss the variables that influence supply.
3.3 Use a graph to illustrate market equilibrium.
3.4 Use demand and supply graphs to predict changes in prices and quantities.
By early 2007, over 100 million iPods had been sold and more than two billion songs had been downloaded from iTunes. Clearly the strategy of selling an expensive digital music player and selling the music cheaply has been very successful for Apple. But how long will the iPod’s dominance last?
Learning Objectives
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3 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Perfectly competitive market A market in which there are many buyers and sellers, all the products are identical, and there are no barriers to new sellers entering the market.
Where Prices Come From: The Interaction of Demand and Supply
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4 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Demand schedule A table showing the relationship between the price of a product and the quantity of the product demanded.
Quantity demanded The amount of a good or service that a consumer is willing and able to purchase at a given price.
Demand curve A curve that shows the relationship between the price of a product and the quantity of the product demanded.
Market demand The demand by all the consumers of a given good or service.
The Demand Side of the Market
Demand Schedules and Demand Curves
Learning Objective 3.1
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5 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Learning Objective 3.1
FIGURE 3-1
A Demand Schedule and Demand Curve
Demand Schedules and Demand Curves
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6 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Law of demand The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.
Learning Objective 3.1
The Law of Demand
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7 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Substitution effect The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes.
Income effect The change in the quantity demanded of a good that results from the effect of a change in the good’s price on consumers’ purchasing power.
Learning Objective 3.1
What Explains the Law of Demand?
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8 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Ceteris paribus (“all else equal”) The requirement that when analyzing the relationship between two variables—such as price and quantity demanded—other variables must be held constant.
A shift of a demand curve is an increase or decrease in demand. A movement along a demand curve is an increase or decrease in the quantity demanded.
Learning Objective 3.1
Holding Everything Else Constant:The Ceteris Paribus Condition
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9 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Learning Objective 3.1
FIGURE 3-2
Shifting the Demand Curve
Holding Everything Else Constant:The Ceteris Paribus Condition
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10 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Learning Objective 3.1
Normal good A good for which the demand increases as income rises and decreases as income falls.
Inferior good A good for which the demand increases as income falls and decreases as income rises.
Variables That Shift Market Demand
• Income
Many variables other than price can influence market demand.
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11 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Learning Objective 3.1
Substitutes Goods and services that can be used for the same purpose.
Complements Goods and services that are used together.
Variables That Shift Market Demand
• Price of related goods
Consumers can be influenced by an advertising campaign for a product.
• Tastes
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12 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Learning Objective 3.1
Demographics The characteristics of a population with respect to age, race, and gender.
• Population and demographics
• Expected Future Prices
Consumers choose not only which products to buy but also when to buy them.
Variables That Shift Market Demand
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13 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Learning Objective 3.1
Variables That Shift Market Demand
TABLE 3-1
Variables That Shift Market Demand Curves
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14 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Learning Objective 3.1
Variables That Shift Market Demand
TABLE 3-1
Variables That Shift Market Demand Curves (continued)
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15 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Why Supermarkets Need to Understand Substitutes and Complements
Makingthe
Connection
Learning Objective 3.1
COFFEE
FROZENPIZZA
HOTDOGS
ICECREAM
POTATOCHIPS
REGULARCEREAL
SPAGHETTISAUCE YOGURT
Varieties in FiveChicago Supermarkets 391 337 128 421 285 242 194 288
Varieties Introducedin a 2-Year Period 113 109 47 129 93 114 70 107
Varieties Removedin a 2-Year Period 135 86 32 118 77 75 36 51
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16 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Companies Respond to a Growing Hispanic Population
You can download Spanish music from iTunes. Apple is one of many companies responding to a growing Hispanic population.
Makingthe
Connection
Learning Objective 3.1
As the demand for goods purchased by Hispanic households increases, more can be sold at every price. Not surprisingly, companies have responded by devoting more resources to serving this demographic group.
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17 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Demand Side of the Market
Learning Objective 3.1
FIGURE 3-3
A Change in Demand versus a Change in the Quantity Demanded
A Change in Demand versus a Change in Quantity Demanded
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18 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Apple Forecasts the Demand for iPhones and other Consumer Electronics
Will Apple’s iPhone match the success of its iPod?
Makingthe
Connection
Learning Objective 3.1
To decide which products to develop, firms need to forecast the demand for those products.
Time will tell whether Apple’s forecast of a large demand for the iPhone will turn out to be correct.
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19 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Supply schedule A table that shows the relationship between the price of a product and the quantity of the product supplied.
Supply curve A curve that shows the relationship between the price of a product and the quantity of the product supplied.
The Supply Side of the Market
Learning Objective 3.2
Supply Schedules and Supply Curves
Quantity supplied The amount of a good or service that a firm is willing and able to supply at a given price.
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20 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Supply Side of the Market
Learning Objective 3.2
Supply Schedules and Supply Curves
FIGURE 3-4
Supply Schedule and Supply Curve
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21 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Supply Side of the Market
Law of supply The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.
Learning Objective 3.2
The Law of Supply
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22 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Supply Side of the Market
Learning Objective 3.2
FIGURE 3-5
Shifting the Supply Curve
The Law of Supply
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23 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Supply Side of the Market
Learning Objective 3.2
Variables That Shift Supply
• Prices of substitutes in production• Number of firms in the market• Expected future prices
Technological change A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.
The following are the most important variables that shift supply:
• Prices of inputs
• Technological change
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24 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Supply Side of the Market
Learning Objective 3.2
Variables That Shift Supply
TABLE 3-2
Variables That Shift Market Supply Curves
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25 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Supply Side of the Market
Learning Objective 3.2
TABLE 3-2
Variables That Shift Market Supply Curves (continued)
Variables That Shift Supply
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26 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Supply Side of the Market
Learning Objective 3.2
FIGURE 3-6
A Change in Supply versus a Change in the Quantity Supplied
A Change in Supply versus a Change in Quantity Supplied
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27 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Market Equilibrium: Putting Demand and Supply Together
FIGURE 3-7
Market Equilibrium
Learning Objective 3.3
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28 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Market equilibrium A situation in which quantity demanded equals quantity supplied.
Competitive market equilibrium A market equilibrium with many buyers and many sellers.
Learning Objective 3.3
Market Equilibrium: Putting Demand and Supply Together
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29 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Market Equilibrium: Putting Demand and Supply Together
Learning Objective 3.3
Surplus A situation in which the quantity supplied is greater than the quantity demanded.
Shortage A situation in which the quantity demanded is greater than the quantity supplied.
How Markets Eliminate Surpluses and Shortages
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30 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Market Equilibrium: Putting Demand and Supply Together
Learning Objective 3.3
FIGURE 3-8
The Effect of Surpluses and Shortages on the Market Price
How Markets Eliminate Surpluses and Shortages
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31 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Market Equilibrium: Putting Demand and Supply Together
Learning Objective 3.3
Demand and Supply Both Count
Always keep in mind that it is the interaction of demand and supply that determines the equilibrium price.
Neither consumers nor firms can dictate what the equilibrium price will be.
No firm can sell anything at any price unless it can find a willing buyer, and no consumer can buy anything at any price without finding a willing seller.
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32 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Solved Problem 3-3Demand and Supply Both Count: A Tale of Two Letters
Learning Objective 3.3
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33 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Effect of Demand and Supply Shifts on Equilibrium
FIGURE 3-9
The Effect of an Increase in Supply on Equilibrium
The Effect of Shifts in Supply on Equilibrium
Learning Objective 3.4
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34 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Falling Price of LCD TelevisionsMaking
the
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Learning Objective 3.4
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35 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Effect of Demand and Supply Shifts on Equilibrium
FIGURE 3-10
The Effect of an Increase in Demand on Equilibrium
The Effect of Shifts in Demand on Equilibrium
Learning Objective 3.4
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36 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Effect of Demand and Supply Shifts on Equilibrium
FIGURE 3-11
Shifts in Demand and Supply over Time
The Effect of Shifts in Demand and Supply over Time
Learning Objective 3.4
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37 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Effect of Demand and Supply Shifts on Equilibrium
TABLE 3-3
How Shifts in Demand and Supply Affect Equilibrium Price (P) and Quantity (Q)
The Effect of Shifts in Demand and Supply over Time
Learning Objective 3.4
SUPPLY CURVE UNCHANGED
SUPPLY CURVESHIFTS TO THE RIGHT
SUPPLY CURVE SHIFTS TO THE LEFT
DEMAND CURVE UNCHANGED
Q unchangedP unchanged
Q increasesP decreases
Q decreasesP increases
DEMAND CURVESHIFTS TO THE RIGHT Q increases
P increases
Q increasesP increases ordecreases
Q increases or decreases P increases
DEMAND CURVESHIFTS TO THE LEFT
Q decreasesP decreases
Q increases or decreasesP decreases
Q decreasesP decreases orincreases
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38 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Solved Problem 3-4High Demand and Low Prices in the Lobster Market?
Learning Objective 3.4
Supply and demand for lobster both increase during the summer, but the increase in supply is greater than the increase in demand, therefore, equilibrium price falls.
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39 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Effect of Demand and Supply Shifts on Equilibrium
Shifts in a Curve versus Movements along a Curve
Learning Objective 3.4
When analyzing markets using demand and supply curves, it is important to remember that when a shift in a demand or supply curve causes a change in equilibrium price, the change in price does not cause a further shift in demand or supply.
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40 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
The Effect of Demand and Supply Shifts on Equilibrium
Shifts in a Curve versus Movements along a Curve
Learning Objective 3.4
Don’t Let This Happen to YOU!Remember: A Change in a Good’s Price Does NotCause the Demand or Supply Curve to Shift
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41 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
An Inside LOOK How Does the iPhone Help Apple and AT&T?
Apple Coup: How Steve Jobs Played Hardball in iPhone Birth
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42 of 42© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Ceteris paribus (“all else equal”)
Competitive market equilibrium
Complements
Demand curve
Demand schedule
Demographics
Income effect
Inferior good
Law of demand
Law of supply
Market demand
Market equilibrium
Normal good
Perfectly competitive market
Quantity demanded
Quantity supplied
Shortage
Substitutes
Substitution effect
Supply curve
Supply schedule
Surplus
Technological change
K e y T e r m s
Recommended