Microeconomics

Table of Contents

1. Topic pack - Microeconomics - introduction
2. 1.1 Competitive Markets: Demand and Supply
3. 1.1 Competitive Markets: Demand and Supply - notes
   1. The nature of markets
   2. Types of markets
   3. Market structure
   4. Spectrum of competition
   5. Demand
   6. The law of demand
   7. Individual and market demand
   8. Non-price determinants of demand
   9. Movements along the demand curve
   10. Shifts in the demand curve
   11. Example - shifts and movements along a demand curve
   12. Exceptions to the normal law of demand
   13. Linear demand functions
   14. Linear demand functions - example
   15. The law of supply
   16. Non-price determinants of supply
   17. Movements along the supply curve
   18. Shifts in the supply curve
   19. Shifts and moves of supply curve
   20. The real supply curve?
   21. Linear supply functions
   22. Linear supply functions - example
   23. Market equilibrium
   24. Market equilibrium - notes
   25. Excess demand and excess supply
   26. Example 1 - the market for DVD players
   27. Example 2 - the market for fish
   28. Applications of demand and supply
   29. Calculating market equilibrium
   30. Calculating equilibrium - example
   31. Scarcity and choice
   32. Choice and opportunity cost
   33. Price signalling
   34. Market efficiency - consumer surplus
   35. Market efficiency - producer surplus
   36. Allocative efficiency
4. 1.1 Competitive markets - questions
5. 1.1 Competitive markets - simulations and activities
6. 1.2 Elasticities
7. 1.2 Elasticities - notes
8. Section 1.2 Elasticities - questions
9. Section 1.2 Elasticities - simulations and activities
10. 1.3 Government intervention
11. 1.3 Government Intervention - notes
12. 1.3 Government intervention - questions
13. 1.3 Government intervention - simulations and activities
14. 1.4 Market failure
15. 1.4 Market failure - notes
16. Section 1.4 Market failure - questions
17. Section 1.4 Market failure - simulations and activities
18. 1.5 Theory of the firm
19. 1.5 Theory of the firm - notes (HL only)
20. Section 1.5 Theory of the firm - questions
21. Section 1.5 Theory of the firm - simulations and activities
22. Print View

The real supply curve?

The supply curve is usually drawn as an upwards (left to right) sloping curve. This implies that as price rises, so will the supply (Law of Supply). This further supposes that the response time for the supplier is zero. In many cases this is far from the case. If it was, then supermarket shelves would never be out of stock of the item you want! Consider the market for houses in a region illustrated in Figure 1 below.

Figure 1 Supply of houses

Builders are constructing and selling 'Q' houses per month at present at price 'P'. Suddenly demand increases significantly, as a government department is moving a capital city office there. What can be done? Not much, at least in the next few months.

Supply is essentially fixed at Q, regardless of demand. The supply curve is a vertical line. Prices will be put up by the developers if they think it worthwhile - in our diagram prices have risen to P1.

Supply will take time to react to the new situation. They need land and planning permission and this can take months or years to organise. It will then take anything from 6 months to a year to build the house itself.

Figure 2 Increase in supply

Now think about the supply of things like CIVIL AIRCRAFT, AGRICULTURAL PRODUCTS and FOREIGN HOLIDAYS.