lectures in microeconomics-charles w. upton demand change to factor price change
TRANSCRIPT
![Page 1: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/1.jpg)
Lectures in Microeconomics-Charles W. Upton
Demand Change to Factor Price Change
DD’
SLRS’SRSSR
p3
p2
p1
q1 q2 q3
Movement along LR
supply curve.
Price goes up, even though industry is perfectly
competitive and all firms
are alike.
![Page 2: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/2.jpg)
Demand Change due to Factor Price Change
An Endogenous Change
pmin SLR
SSR
D
Now let’s talk about how a
change in demand can affect factor
prices.
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Demand Change due to Factor Price Change
An Endogenous Change
pmin SLR
SSR
D
![Page 4: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/4.jpg)
Demand Change due to Factor Price Change
An Endogenous Change
pmin SLR
SSR
D
![Page 5: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/5.jpg)
Demand Change due to Factor Price Change
An Endogenous Change
pmin SLR
SSR
D
p1
![Page 6: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/6.jpg)
Demand Change due to Factor Price Change
An Endogenous Change
pmin SLR
SSR
D
p1
![Page 7: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/7.jpg)
Demand Change due to Factor Price Change
An Endogenous Change
pmin SLR
SSR
D
p1
No change in factor prices
means no long run change in product price.
![Page 8: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/8.jpg)
Demand Change due to Factor Price Change
An Endogenous Change
pmin SLR
SSR
D
p1
No change in factor prices
means no long run change in product price.
But it does not have to be this
way.
![Page 9: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/9.jpg)
Demand Change due to Factor Price Change
The demand for lumber
• Lumber is a highly competitive business, with a key factor of production: timber.
![Page 10: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/10.jpg)
Demand Change due to Factor Price Change
The demand for lumber
• Lumber is a highly competitive business, with a key factor of production: timber
Lumber = processed wood ( 2x4, etc)
Timber = trees ready for processing
![Page 11: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/11.jpg)
Demand Change due to Factor Price Change
The demand for lumber
• Lumber is a highly competitive business, with a key factor of production: timber.
• A change in the demand for lumber can have feedback effects on the price of timber.
![Page 12: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/12.jpg)
Demand Change due to Factor Price Change
The demand for lumber
• Lumber is a highly competitive business, with a key factor of production: timber.
• A change in the demand for lumber can have feedback effects on the price of timber.
This is the case of a pecuniary external
diseconomy.
![Page 13: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/13.jpg)
Demand Change due to Factor Price Change
The Demand for Lumber and Timber
Lumber
D
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Demand Change due to Factor Price Change
Ignoring Timber Prices
Lumber
D
S
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Demand Change due to Factor Price Change
An Increase in Demand
Lumber
D
S
D`
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Demand Change due to Factor Price Change
Complication of SR supply curve
Lumber
D
S
D`
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Demand Change due to Factor Price Change
Complication of SR supply curve
Lumber
D
S
D`
![Page 18: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/18.jpg)
Demand Change due to Factor Price Change
Complication of SR supply curve
Lumber
D
S
D`
![Page 19: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/19.jpg)
Demand Change due to Factor Price Change
Complication of SR supply curve
Lumber
D
S
D`
But net effect is no change in price of
lumber. A lumber mill is a lumber
mill.
![Page 20: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/20.jpg)
Demand Change due to Factor Price Change
The Demand for Lumber and Timber
Lumber Timber
D D
S
![Page 21: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/21.jpg)
Demand Change due to Factor Price Change
The Demand for Lumber and Timber
Lumber Timber
DD’
D’
D
S
![Page 22: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/22.jpg)
Demand Change due to Factor Price Change
The Demand for Lumber and Timber
Lumber Timber
DD’
D’
D
SIf lumber production is increasing due to a
demand shift, there is a shift in the demand for timber. Timber prices
will be going up.
![Page 23: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/23.jpg)
Demand Change due to Factor Price Change
Effect of Price Changes
p*
q*q**
Q*
The AC curve assuming
timber costs p1
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Demand Change due to Factor Price Change
Effect of Price Changes
p*
q*q**
p**
Q*Q**
The AC curve assuming
timber costs p1The AC curve assuming
timber costs p2
![Page 25: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/25.jpg)
Demand Change due to Factor Price Change
Effect of Price Changes
p*
q*q**
p**
Q*Q**
Q* Q**
S
![Page 26: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/26.jpg)
Demand Change due to Factor Price Change
Effect of Price Changes
p*
q*q**
p**
Q*Q**
Q* Q**
SBecause of external
pecuniary diseconomies, we
get an upward sloping supply
curve for lumber
![Page 27: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/27.jpg)
Demand Change due to Factor Price Change
Effect of Price Changes
p*
q*q**
p**
Q*Q**
Q* Q**
SBecause of external
pecuniary diseconomies, we
get an upward sloping supply
curve for lumber
If you want a supply Q** of
lumber the price will be p**
![Page 28: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/28.jpg)
Demand Change due to Factor Price Change
Long Run and Short Run Changes
D
p1
q1
The demand
and supply curves
SLR
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Demand Change due to Factor Price Change
First Movement
DD’
SLRSSR
p2
p1
q1 q2
Initial effect of demand shift is
movement along SR Supply Curve
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Demand Change due to Factor Price Change
New Firms Enter, Pushing SR Supply Curve to Right
DD’
SLRS’SRSSR
p3
p2
p1
q1 q2 q3
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Demand Change due to Factor Price Change
Last Movement
DD’
SLRS’SRSSR
p3
p2
p1
q1 q2 q3
Then, a movement down new demand curve.
![Page 32: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/32.jpg)
Demand Change due to Factor Price Change
Net Effect
DD’
SLRS’SRSSR
p3
p2
p1
q1 q2 q3
Movement along LR
supply curve.
![Page 33: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/33.jpg)
Demand Change due to Factor Price Change
Net Effect
DD’
SLRS’SRSSR
p3
p2
p1
q1 q2 q3
Movement along LR
supply curve.
Price goes up, even though industry is perfectly
competitive and all firms
are alike.
![Page 34: Lectures in Microeconomics-Charles W. Upton Demand Change to Factor Price Change](https://reader031.vdocuments.site/reader031/viewer/2022032307/56649cb05503460f94975759/html5/thumbnails/34.jpg)
Demand Change due to Factor Price Change
End
©2006 Charles W. Upton