Demand and Supply in Microeconomicss

DANANG UNIVERSITY
UNIVERSITY OF ECONOMICS
TRADE DEPARTMENT


MICROECONOMICS
Demand and Supply
Teacher: Nguyen Huu Hien
Members of group:
• Le My Linh
• Duong Minh Ha
• Le Thanh Quyen
• Le Thi Truc Kieu
• Huynh Thi Thuy Trang
• Hoang Thi Phuong Thao

Class: 39K01.1-CLC


Dec. 11

DEMAND and SUPPLY

MICROECONOMICS and MACROECONOMICS
 

Microeconomics is a branch of economics that studies the behavior of individual
economics units: consumers, workers, investors, owners of land, business firms in
making decisions on the allocation of limited resources. Typically, it applies to
markets where goods or services are bought and sold. Microeconomics examines
how these decisions and behaviors affect the supply and demand for goods and

services, which determines prices, and how prices, in turn, determine the quantity
supplied and quantity demanded of goods and services.

This is in contrast to macroeconomics, which involves the sum total of economic
activity, dealing with the issues of growth, inflation, and unemployment.

Macroeconomics is a branch of economics dealing with the performance,
structure, behavior, and decision-making of an economy as a whole, rather than
individual markets. This includes national, regional, and global economies.
With microeconomics, macroeconomics is one of the two most general fields
in economics.

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DEMAND and SUPPLY
 

 Demand
1. Definition: Demand is a schedule or a curve that shows the various amounts
of product that consumers are willing and able to purchase at each of a
series of possible prices during a specified period of time.
2. The demand curve: the inverse relationship between price and quantity
demanded for any product can be represented on a simple graph, in which,

by convention, we measure quantity demanded on the horizontal axis and
price on the vertical axis. Such a curve is called a demand curve. Its
downward slope reflects the law of demand – people buy more of a
product, service, or resource as its price falls.
Ex:

P

D
Q
Determinants of demand: the demand curve shifts because of changes in:
• Consumer tastes.
• The number of buyers in the market.
• Consumer income.
• The prices of substitute or complementary goods.
• Consumer expectations

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3. Market demand: market demand includes all of individual demands on the
market. In theory, market demand is obtained by adding all the individual
quantities demanded at each price; we then plot the price and the total
quantity demanded as one point on the market demand curve.

4. Change in demand: a change in demand schedule or, graphically, a shift in
the demand curve is called a change in demand. It occurs because the
consumer’s state of mind about purchasing the product has been altered in
response to a change in one or more of the determinants of demand.
If consumers desire to buy more corn at each possible price, that increase in
demand is shown as a shift of the demand curve to the right.
5. Changes in quantity demanded: is a movement from one point to another
point – from one price-quantity combination to another- on a fixed demand
schedule or demand curve. The cause of such a change is an increase or
decrease in the price of the product under consideration.
This is a simple example:
With the price 15,000 VND/kg of oranges, consumer A is ready to
buy 2 kg for his family for one day in hot summer months, 2008 in Hanoi.
However, when the price increases by 30,000 VND/kg, that consumer only
desire to and afford to buy 1 kg.
When the orange price is 15,000 VND/kg, the oranges quantity
demanded is marketed to 10 tons per day. But when the price increases by
30,000 VN/kg, there are only 4 tons of oranges per day in Hanoi market. So,
with the different price, the consumers will desire to and afford to buy
different quantities of articles.
Whereby, we see that the oranges quantity demanded of consumer A in
Hanoi is 2 kg/day while Hanoi market demand is 10 tons of oranges per day
when the orange price is 15,000 VND/kg in summer, 2008.

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 Supply
1. Definition: supply is a schedule or curve showing the amounts of a product
that producers are willing and able to make available for sale at each of a
series of possible prices during a specific period.
2. The supply curve: the covariate relationship between prices and quantity
supplied for any product can be represented on a simple graph, in which, by
convention, we measure quantity supplied on the horizontal axis and price
on the vertical axis. Such a curve is called a supply curve. Its upward slope
reflects the law of supply – as price rises, the quantiy supplied rises; as
price falls, the quantity supplied falls.
Ex:

P
S

Determinants of supply:
• Resource prices.
• Technology.
• Taxes and subsidies.
• Prices of other goods.
• Price expectations.
• The number of sellers in the market

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3. Changes in supply: is a change in the schedule and a shift of the supply
curve. An increase in supply shifts the curve to the right, a decrease in
supply shifts it to the left. The cause of a change in supply is a change in one
or more of the determinants of supply
4. Changes in quantity supplied: is a movement from one point to another on
a fixed supply curve. Quantity supplied changes only when the price
changes.
This is a simple example:

With the price 15,000 VND/kg of oranges, producer A is ready to
provide Hanoi market with 10 tons of oranges per day.
When the price increase by 30,000 VND/kg, then they see that profit
is increasing, producer A desires to supply 20 tons of oranges per day, but in
fact they can afford to supply 15 tons/day to the market. So, Hanoi market
supply here is 15 tons/day when the orange price is 30,000 VND/kg.
We see that, with the different price, the producers only will be ready
to supply different products to the market. The higher the price, the more
products will the producers be ready to supply than the previous lower price.
But this supply is depended on the producing abilities. Then they can’t
produce enough even though they know the profit is really good.

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Bird Flu in U.S.
Clips Industry's Wing
By SCOTT KILMAN
Staff Reporter of THE WALL STREET JOURNAL

The appearance of a mild form of avian influenza in Delaware is hobbling the U.S.
poultry industry's plans to capitalize on the outbreak of a far more dangerous type
of the disease across Asia.
Chicken giant Tyson Foods Inc. and
its U.S. rivals had hoped to quickly
increase their sales to customers such
as Japan, which has had to cut off
chicken shipments from its two
biggest Asia suppliers -- Thailand and
China -- as those countries struggle to
control a type of the bird virus that
can kill people.
In part because of the outbreak across
Asia, economists at the U.S.
Agriculture
Department
have
projected, as recently as Tuesday, that

U.S. poultry exports will grow 6.8%
in 2004 to 5.3 billion pounds. Japan
imported roughly $50 million of U.S. chicken meat last year.
The outbreak in Delaware, which state officials said Tuesday had spread to a
second poultry farm, has prompted Japan and 10 other countries to impose full or
partial bans on U.S. poultry. The virus in Delaware isn't the type that infects

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people, but it is dangerous enough to birds that U.S. poultry exports probably
won't return to normal for at least several weeks, industry officials said.
"The Delaware outbreak is complicating things," said Toby Moore, a vice
president of the USA Poultry & Egg Export Council in Stone Mountain, Ga.
A major chicken brand was drawn into the Delaware outbreak Tuesday when
closely held Perdue Farms Inc. was forced to destroy a flock of 72,000 birds in
which the respiratory virus was detected. The discovery was a surprise because the
relatively mild H-7 strain of the virus in Delaware is primarily spread among a
less-sophisticated type of poultry farm than that run by Perdue, which raises and
slaughters chickens for brand-name products sold in the nation's major
supermarkets.

The virus is typically spread among so-called backyard flocks that are raised by
small farms for sale to a niche market of consumers who prefer to buy live

chickens. Low-pathogenic types of the flu virus now being found in Delaware
have infected poultry farms in several states in recent years.
Officials of Perdue, the fourth-largest U.S. poultry concern, said they believe the
Delaware flock got the virus from a neighboring backyard flock being raised for
the live market in New York City.

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Asia's problems could be a big break for the U.S. poultry industry, which is
heavily dependent on foreign sales. About 17% of the chicken meat produced in
the U.S. is exported, a market valued at about $1.5 billion annually.

The more dangerous form of avian flu sweeping across 10 Asian countries has
forced governments there to kill more than 50 million chickens and ducks, yet it is
far from clear that the epidemic is ebbing. Indeed, the World Health Organization
is putting pressure on Asian officials to continue their bird-eradication efforts
instead of turning to flu vaccines that might ease the economic blow to their
domestic poultry industries. The H5N1 strain has so far caused at least 19 human
deaths in Thailand and Vietnam.
The forecast for rising exports, plus the popularity of low-carbohydrate diets in the
U.S., had helped to lift U.S. chicken prices this winter to their highest level in five
years. So far, the outbreak in Delaware hasn't prompted any major poultry
company to lower its profit outlook.

In past outbreaks of this type, America's trading partners have narrowed their
import bans in a matter of weeks to the states where the disease was present. In
this case, the biggest foreign customer of U.S. poultry, Russia, so far is blocking
imports only from Delaware, which produces just 3% of U.S. chickens.
"If things play out as they normally do, I'd characterize this as a bump in the road,"
said Mike Cockrell, chief financial officer of Sanderson Farms Inc., one of the
nation's major chicken processors, based in Laurel, Miss.
Write to Scott Kilman at

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SUMMARY:

Some U.S. poultry companies increased their sales to their customers, which had
reduced poultry shipments from their previous Asian suppliers, as these suppliers
have to deal with a dangerous type of bird virus.
However, the appearance of a form of bird flu in Delaware delayed U.S. poultry
industry’s plans to make profit from the more dangerous type of Asian bird flu.
The outbreak in Delaware prompted U.S.’s customers to impose bans on U.S.
poultry, which makes the value of U.S. poultry exports fall for at least several
weeks.
The forecast for rising exports, plus the popularity of low-carbohydrate diets in the
U.S., had helped to lift U.S. chicken prices to their highest level in five years. Until

now, the outbreak in Delaware hasn't prompted any major poultry company to
lower its profit outlook.
In past outbreaks of this type, America's trading partners have narrowed their
import bans to the states where the disease was present. Now, the biggest foreign
customer of U.S. poultry, Russia, is blocking imports only from Delaware

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ANALYSIS QUESTIONS

1. Is this an article about microeconomics or macroeconomics? Explain why.
2. Paragraph two says that Tyson was hoping to increase sales to customers in

Japan. Is this a shift in supply or a movement along a supply curve?
Demonstrate graphically.

3. Give an example from the article of a shift in supply. Show the effect on price.
4. Give one example of a shift in demand and one example of a movement along a
demand curve in the article.
5. Show the net effect of limiting U.S. exports and the bird flu in Asian countries
on the demand and supply for U.S. chicken sold abroad.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

ANSWERS
1. This is a microeconomic issue because it concerns issues facing firms in a
particular industry. To the extent that the chicken industry is large enough to affect
the overall market, it may also be a macroeconomics issue.
2. Tyson was facing increased demand (not increased quantity demanded) for its
chickens. That is, the demand for chickens shifted to the right. This increases
both equilibrium price and equilibrium quantity as shown in the graph below.

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Price

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Supply

P1
P0

Demand
Q0

Q1

Quantity

.

Price

3. An example of a shift in supply is the supply of chicken imported from the
United States. Those countries who limited the import of U.S. chicken because
of the problems in Delaware will face a reduced supply of U.S. chicken. As a
consequence, the equilibrium price of imported U.S. chicken will rise and
equilibrium quantity will fall as shown in the graph below.

Supply

P1
P0
Demand
Q1

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Q0

Quantity

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4. An example of a shift in demand is the increased demand by the Japanese for
U.S. poultry. The demand for U.S. poultry shifts to the right. An example of a
movement along a demand curve is the effect of limiting U.S. exports of
chicken to Japan. The supply of U.S. chicken shifts to the left and there is a
movement up along the Japanese demand curve for imported U.S. chicken.

Price

5. As the Japanese kill their birds to rid the market of sick poultry, the price of
Japanese poultry will rise and they will look elsewhere to buy their poultry.
This means that the demand for U.S. imported chicken will rise. (Demand shifts
from D0 to D1.) This increases both equilibrium quantity (Q 0 to Q1) and price
(P0 to P1). When the U.S. found sick chickens in Delaware, the U.S. producers
killed the chickens and Japanese limited U.S. imports. The first action shifts the
supply of U.S. chickens slightly to the left (S0 to S1) and the second action
shifts the demand curve to the left (D 1 to D2). The equilibrium price may have
risen or fallen, but equilibrium quantity definitely falls from its peak after the
initial increase in demand.

S1

S0

P1
P0

D0
Q0 Q2 Q1

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D1
D2

Quantity

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SOLUTIONS
• For Government
_ Control the influenza in Delaware closely, do not let it spread to other
places in the US.
_ Create favorable conditions for firms and try to make good relationships
with other countries as many as possible to open the exports to Asia in
particular and to the world in general.
_ Rise tax on imported chickens, this money will be used to support poultry
companies.
_ Have a policy about decreasing the amount of imported chickens,
simultaneously reduce tax on domestic ones to stimulate the demand of people.
• For firms
_ Destroy infected chicken honestly.
_ Organize selling fresh chickens at a suitable price to gain trust from
people, may be begin from who have a low standard of living and then to the

higher ones.
_ This is a great chance for American firms to reinforce the poultry exports
to Asian countries while the avian influenza in Asia is getting more complicated.
_ The forecast for rising exports, plus the popularity of low-carbohydrate
diets in the U.S., had helped to lift U.S. chicken prices this winter to their
highest level in five years. This makes the profit outlook of the poultry
companies much better.
_ The appearance of a mild form of avian influenza in Delaware is hobbling
the US poultry industry’s plans to export to Asian market while Delaware just
produces 3% of US chickens. So the US poultry industries in other places can
take advantage of this to reinforce their exports.

 THE END 

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