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Management For Engineers: Micro-Economics

This document provides an overview of microeconomics concepts including supply and demand, markets and competition, and equilibrium. It defines economics as the study of how individuals, organizations, and governments allocate scarce resources. Microeconomics focuses on supply and demand forces that determine price levels, while macroeconomics studies entire industries and economies. A competitive market exists when there are many buyers and sellers such that no individual has significant impact on price, though most markets involve some level of cooperation between buyers and sellers to reduce competition. Equilibrium occurs at the price where quantity demanded equals quantity supplied.

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67 views23 pages

Management For Engineers: Micro-Economics

This document provides an overview of microeconomics concepts including supply and demand, markets and competition, and equilibrium. It defines economics as the study of how individuals, organizations, and governments allocate scarce resources. Microeconomics focuses on supply and demand forces that determine price levels, while macroeconomics studies entire industries and economies. A competitive market exists when there are many buyers and sellers such that no individual has significant impact on price, though most markets involve some level of cooperation between buyers and sellers to reduce competition. Equilibrium occurs at the price where quantity demanded equals quantity supplied.

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© © All Rights Reserved
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Management

for
Engineers
MICRO-ECONOMICS

The University of Sydney


ELEC3702 2016

Topics

Definition of Economics
Micro and Macro Economics
Markets and Competition
Competition
Demand
Supply
Equilibrium

ELEC3702 2016

Economics

Economics is the study of decisions that


people, organisations and governments make
relating to the allocation of limited resources.

ELEC3702 2016

Micro --- Macro Economics

MICROECONOMICS
Focuses on the SUPPLY and DEMAND that determines the price
levels seen in the economy.

MACROECONOMICS
Studies the economy as a whole entire industries and
economies

ELEC3702 2016

Markets and Competition

THE MARKET
Groups of BUYERS and SELLERS of a particular good or service

BUYERS
Consumers of a particular good or service who establish the DEMAND

SELLERS
Providers of a particular good or service who establish the SUPPLY
ELEC3702 2016

Equilibrium

The market is in EQUILIBRUIM when the DEMAND is equal to the


SUPPLY and
the BUYER and SELLER agree on a price.

ELEC3702 2016

Competitive Market

A market is truly COMPETITIVE when there are so many BUYERS and


SELLERS so that each individual has negligible impact on the market
price.

This is seldom achieved in practice as it is the nature of BUYERS and


SELLERS to band together to minimise competition.

ELEC3702 2016

Competition

Characteristic

Pure
Competition

Monopolistic
Competition

Oligopoly

Monopoly

No of
competitors

Many

Few to many

Few

No
competition

Ease of entry

Easy

Not easy

Difficult

Very difficult
or
government
regulated

Similarity

Similar

Different

Similar or
different

No competing
products

Price control

None

Some

Some

Considerable*

* Price may be controlled if industry if government regulated


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Impediments to Competition

Supply limited by Government


Supply limited by Industry Groupings
Barriers to entry qualifications & training
Supply limited by monopoly assets

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Law of Demand
All else being equal, the quantity demanded of a good FALLS when the
price of the good RISES

DEMAND CURVE
14
12
10

Price
($)

8
6
4
2
0

10

20

30
40
Demand
ELEC3702 2016

50

60
10

Shift in Demand Curve

Increased demand

Price
Reduced demand

Demand
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11

Consumer income

As consumer income increases


demand for superior good will increase
demand for inferior good will decrease

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12

Elasticity of Demand

Inelastic demand

Price

Elastic demand

Demand
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13

Law of Supply
All else being equal, the quantity supplied of a good RISES when the price
of the good RISES

SUPPLY CURVE
14
12
10

Price
($)

8
6
4
2
0

10

20

30

Supply

40

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50

60
14

Shift in Supply Curve

Reduced supply

Price

Increased supply

Supply
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15

Equilibrium

Supply
Equilibrium
Price
Price

Equilibrium
Demand

Demand

Demand
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16

Market not in Equilibrium


Price too HIGH leading to
OVER SUPPLY
(SURPLUS)
Supply

Price

Price too LOW leading to


UNDER SUPPLY
(SHORTAGE)

Demand

Demand
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17

Market not in Equilibrium

Manufacturer will
increase
production/prices to
achieve equilibrium
Hot weather will increase
the demand for ice cream
Price
Supply

Demand
Demand
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18

Changes in Supply and Demand

Changes in price of other commodities


Changes in income
Changes in technology
Changes in demographics
Changes in government policy
Force of nature

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19

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20

Electricity Market

1. Generating companies submit bids to supply electricity


2. AEMO dispatches the generators starting from the cheapest
3. As DEMAND increases, higher cost plant is dispatched
4. The COST is the cost of the last plant to be dispatched

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21

NSW Electricity Demand and Price

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22

Summary

Market equilibrium is determined by the intersection of the SUPPLY


and DEMAND curves
The behaviour of BUYERS and SELLERS naturally drives markets
towards equilibrium

ELEC3702 2016

23

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