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Frances Rua Ne
Frances Rua Ne
Frances Rua Ne
A
2.00
D1
0 12 20 Number of Cigarettes
Smoked per Day
Change in Demand
Price
A shift in demand
$2.00
D1
0 10 20 Quantity
Change in Quantity Demanded versus
Change in Demand
Variables that
Affect Quantity Demanded A Change in This Variable . . .
Price Represents a movement along
the demand curve
Income Shifts the demand curve
Prices of related goods Shifts the demand curve
Tastes (new products) Shifts the demand curve
Expectations Shifts the demand curve
Number of buyers Shifts the demand curve
Determinants of Supply
• Market price
• Input prices
• Technology (new production methods)
• Expectations
• Number of producers
Change in Quantity Supplied versus
Change in Supply
Variables that
Affect Quantity Supplied A Change in This Variable . . .
Price Represents a movement along
the supply curve
Input prices Shifts the supply curve
Technology Shifts the supply curve
Expectations Shifts the supply curve
Number of sellers Shifts the supply curve
Change in Quantity Supplied
Price
Supply
curve, S1
2 As price changes,
quantity supplied
changes
1.50
0 2 3 Quantity
Increase in Supply
Price
Supply
curve, S1
0 Quantity
Equilibrium of Supply and
Price
Demand
Supply
Demand
Equilibrium
quantity
0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity
Technology and Change
Distinguish between:
• Rate of technological change =>growth
• Nature of technological change
Process Product
e.g. Scale e.g. Extend range
Technological & Fill in gaps
Organisational Goods & Services
How does technology change
affect the market?
• Product change – new consumers emerge
(shift from other products) bidding up price
which, without competition, induces relatively
little entry => little reduction in price
• So who benefits? Does anyone lose?
• Product change – new consumers emerge
(shift from other products) bidding up price
which, with competition, induces more supply
=> price fall
• So who benefits? Does anyone lose?
How an Increase in Demand
Price
Affects the Equilibrium
Supply
2.00
Initial
equilibrium
D2
D1
0 7 10 Quantity
How an Increase in Demand
Price
Affects the Equilibrium
Shift in taste towards new product.
Supply
D1
0 7 10 Quantity
How an Increase in Demand
Price
Affects the Equilibrium
Supply
D1
0 7 10 Quantity
How an Increase in Demand
Price
Affects the Equilibrium
Overall effect depends
on supply response
Supply
D1
0 7 10 13 Quantity
How does technology change
affect the market?
• Process change – without competition,
some more will be produced but controlled
by those with “market power”
• So who benefits? Does anyone lose?
• Process change – with competition, more
can be produced which causes supply to
shift which causes price to fall …..
• So who benefits? Does anyone lose?
How an Increase in Supply
Affects the Equilibrium
Price
S2
Supply change
induced by technology
Initial equilibrium
Demand
0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity
How an Increase in Supply
Affects the Equilibrium
Price
New technology increases the
Supply of the product. – depends
S2 on amount of competition…
S1
Initial
$2.50 equilibrium
Demand
0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity
Impact of Technology on Markets
Benefits depend on
• Extent of the technology change
• Nature of the market system
• Ability of consumers to respond
• Ability of producers to respond
• => importance of trade…
• => importance of investment …
• => importance of confidence …
How do economists think about
technology
• Short run: technology and techniques of
production are pretty fixed
• Medium run: technology is fixed but it is possible
to alter the techniques of production significantly
• Long run: technology can change, affecting how
production is undertaken and what is produced.
• ICT: Distinction has narrowed …
• Even the simplest technology change affects the rest
of the economy ….
Two good world
A world with just two goods:
Quantity of
If we look at production
Computers
Produced
of both computers and cars,
4,000
the concave line joining X
and Y shows the maximum
3,000 combinations of two goods
that can be produced.
2,000
A
2,000
A
8 8
7 7
6 6
5 5
4 4
3 3
2 2
1 1
0 0
1970-1975 1975-1980 1980-1985 1985-1990 1990-1995 1995-2000
Irish GNP Growth EU15 GDP Growth Irish GNP 1970-200 Average EU15 GDP 1970-2000 Growth
Translating technological
progress into economic growth
1.Invention ~ prototype/basis for
patent R
2.Innovation ~ commercial application D
3.Diffusion ~ commercialisation D
logistic curve.
Profitability requires success at each stage –
relationship no longer considered linear.
Technology does not guarantee local growth
Technology and R&D
• If technological change is important for
growth and development, how do we make
sure that it happens?
• How do we make sure it diffuses?
• Idea that governments have a direct role in
the process – role of the “arms race”…
• EU context – Lisbon strategy: US vs EU
• What is the role for government?
Role of Government
ICT
Economists see technology as
• Source of output growth potential
• Source of living standard improvements
• Source of economic restructuring
• Source of income distribution changes