Managerial Economics &

Business Strategy
Chapter 2
Market Forces: Demand and Supply

McGraw-Hill/Irwin
Michael R. Baye, Managerial Economics and
Business Strategy
 2-2

OVERVIEW
I. Market Demand III. Market Equilibrium
 Determinants of Demand IV. Price Restrictions
 The Demand Function V. Comparative Statics
 Demand Shifters

II. Market Supply

 Determinants of Supply
 The Supply Function
 Supply Shifters
SUPPLY AND DEMAND
 2-4

Determinants of Demand
 Price (Px)  Law of Demand
 Income (I)
 Normal good
 Inferior good
 Prices of Related Goods (Py)
Demand  Prices of substitutes
Shifters  Prices of complements
 Advertising (A)
 Consumer tastes (T)
 Population (Pop)
 Consumer expectations (Pe, Ie, PAe)
 Feature (F)
 Any other variable affecting demand (O)
 2-6

I. Market Demand Curve

 Shows the amount of a good that will be purchased at

alternative prices, holding other factors constant.
 Law of Demand
 The demand curve is downward sloping.

Price

D
Quantity
 2-7

The Demand Function

 A general equation representing the demand curve
Qxd = f (Px , I, Py, A, T, Pop, Pe, Ie, PAe, F, O)
 2-8

Inverse Demand Function

Price as a function of quantity demanded
Example:
 Demand Function
Qxd = 10 – 2Px
 Inverse Demand Function:
2Px = 10 – Qxd
Px = 5 – 0.5Qxd
 2-9

Change in Quantity Demanded

Price
A to B: Increase in quantity demanded

A
10

B
6

D0

4 7 Quantity
 2-10

Change in Demand
Price D0 to D1: Increase in Demand

6
D1

D0
7 13 Quantity
Demonstration Problem 2-1

QX  12.000  3PX  4 PY  1M  2 Ax
d

Fungsi Permintaan secara sederhana :

Q X  6.060  3PX
d

Fungsi Permintaan invers :

PX  2.020  0,333Q X
 2-12

II. Market Supply Curve

 The supply curve shows the amount of a good that will be

produced at alternative prices.
 Law of Supply
 The supply curve is upward sloping.

Price
S0

Quantity
 2-13

Supply Shifters
 Input prices (Pi)
 Technology (T)
 Number of firms (Nf)
 Entry
 Exit
 Prices of Related Goods (Py)
 Taxes (Tx)
 Excise tax = lumpsum tax
 Ad valorem tax = proporsional tax
 Producer expectations (Pe)
 Any other variable affecting demand (O)
 2-14

The Supply Function

 An equation representing the supply curve:

QxS = f(Px , Pi , T, Nf, Py, Tx, Pe, O,)
 2-15

Inverse Supply Function

Price as a function of quantity supplied

Example:
 Supply Function
Qxs = 10 + 2Px
 Inverse Supply Function:
2Px = 10 + Qxs
Px = 5 + 0.5Qxs
 2-16

Change in Quantity Supplied

Price A to B: Increase in quantity supplied

S0
B
20

A
10

5 10 Quantity
 2-17

Change in Supply
S0 to S1: Increase in supply
Price

S0

S1

5 7 Quantity
Demonstration Problem 2-3

Q X s  2.000  3PX  4 Pr  Pw
Fungsi Penawaran secara sederhana :

Q X s  400  3PX
Fungsi Penawaran invers :

PX  133,33  0,333Q X s
 2-19

III. Market Equilibrium

 The Price (P) that Balances

supply and demand
 QxS = Qxd
 No shortage or surplus
 Steady-state
PRICE FLOOR AND PRICE CEILING
 2-21

If price is too low…

Price S

7
6

Shortage D
12 - 6 = 6
6 8 12 Quantity
 2-22

If price is too high…

Surplus
Price 14 - 6 = 8
S
9
8
7

6 8 14 Quantity
 2-23
IV. Price Restrictions
Price Ceilings
 The maximum legal price that can be charged.
 Bertujuan untuk membantu konsumen
 Istilah Ceiling merujuk pada harga itu menjadi harga yang paling tinggi
yang diijinkan di pasar  harga yang ditetapkan di bawah harga
ekuilibrium
 Akibat : muncul shortage
Price Floors
 The minimum legal price that can be charged.
 Bertujuan untuk membantu produsen
 Istilah Floor merujuk pada harga itu menjadi harga yang paling rendah
yang diijinkan di pasar  harga yang ditetapkan di atas harga ekuilibrium
 Akibat : muncul surplus
 2-24

Impact of a Price Ceiling

Price S

PF

P*

P Ceiling

Shortage D

Qs Qd Quantity
Q*
 2-25

Impact of a Price Floor

Price Surplus S
PF

P*

Qd Q* QS Quantity
 2-26
IV. Comparative Static Analysis
(Analisis Statistik Komparatif)
 How do the equilibrium price and quantity change when a determinant of
supply and/or demand change?

 Applications of Demand and Supply Analysis

* Changes in Demand  figure 2-13

* Changes in Supply  figure 2-14
* Simultaneous Shifts in Supply and Demand  figure 2-15
 CONTOH SOAL DEMAND ANALYSIS

Permintaan TV berwarna (20 inchi) ditemukan fungsi permintaan secara

umum sebagai berikut : QDX = -1,4 – 15 PX + 7,5 PY + 2,6 I + 2,5 A
QDX = kuantitas permintaan TV berwarna (ribuan unit)
PX = harga dari TV berwarna (ratusan ribu rupiah)
PY = harga TV dari merk lain (ratusan ribu rupuah)
I = pendapatan konsumen (jutaan rupiah per tahun)
A = pengeluaran iklan produk TV tersebut (ratusan juta rupiah per tahun)
 ANALISIS KESEIMBANGAN PASAR
Permintaan & Penawaran Kamar Hotel di Surabaya

Titik Harga sewa Kuantitas Kuantitas Kelebihan

Kombinasi (US $ / hari) penawaran permintaan
(kamar / bln.) (kamar / bln.)

A 130 42.500 102.500 - 60.000

B 150 47.500 87.500 - 40.000

C 170 52.500 72.500 - 20.000

D 190 57.500 57.500 0

E 210 62.500 42.500 + 20.000

F 230 67.500 27.500 + 40.000

G 250 72.500 12.500 + 60.000

2. Tabel berikut menunjukkan skedul permintaan dan penawaran hipotesis
untuk apartemen di Jakarta dan sekitarnya :