Personal Computer Shipments, Market Percentage
Shares by Vendors, World and United States 2011
The Personal Computer Market
• Supply increases due to Δ in
technology
• Product becomes more
useful due to network
effects and improved quality
• Network effect: when a
product becomes more
valuable as more people
have it…telephones, etc
• Demand increases because
of improved network effect
and quality
• Increased demand spurs
continued
investment/improvement
…
Increasing Demand for Crude
Oil
Clicker:
In this graph, Demand
increases from D1 to
D2. What happens to
Supply?
A. Supply increases
B. Supply is
unchanged
C. Supply decreases
D. Huh???
Increasing Demand for Crude
Oil
Clicker:
In this graph, Demand
increases from D1 to
D2. What happens to
Quantity Supplied?
A. Quantity Supplied
increases
B. Quantity Supplied is
unchanged
C. Quantity Supplied
decreases
D. Huh???
Quick Market Terms:
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A sole proprietorship is a situation in which one
individual owns a firm.
A partnership is a situation in which several
individuals own a firm.
A corporation is a situation in which shareholders
own stock in a firm.
Corporate stocks are shares in the ownership of a
corporation.
A stock market is a set of institutions in which
shares of stock are bought and sold.
Retained earnings are profits not paid out in
dividends.
Dividends are profits distributed to shareholders.
Demand and Supply in the
Stock Market
A Change in Expectations Affects the
Price of Corporate Stock
Reports suggest
rising profits for Intel
corp.
Seller Expectations?
Buyer Expectations?
A Change in Expectations Affects the
Price of Corporate Stock
CLICKER
In this graph, after both supply
and demand effects have
taken place what is the result
in comparison to the initial
equilibrium?
A. Price and quantity both
increased
B. Price increased
C. Quantity increased
D. Price and quantity
decreased
E. We’re not sure what the
net effect is.
2. GOVERNMENT INTERVENTION IN
MARKET PRICES: PRICE FLOORS AND
PRICE CEILINGS
Learning Objectives
1. Use the model of demand and supply to explain
what happens when the government imposes
price floors or price ceilings.
2. Discuss the reasons why governments
sometimes choose to control prices and the
consequences of price control policies.

Price Floor: price is not allowed to decrease below a
certain level. Examples: minimum wage,
agricultural price supports.
◦ If the floor is above the equilibrium price, then it results in
a surplus.
◦ In the labor market, a “surplus” means unemployment. But
how much?

Price Ceiling: price is not allowed to increase above
a certain level. Example: rent controls.
◦ If the ceiling is below the equilibrium price, then it results
in a shortage.
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

With demand curve in
position D1, the market
would be in
equilibrium at a price
of $13
With a price support
(minimum price) of
$13 and demand curve
D2, there would be a
surplus of milk
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Price Floors in Wheat Markets
Rental Price Ceilings
• The purpose of rent control is to make rental
units cheaper for tenants than they would
otherwise be
• Rent control is an example of a price ceiling
– Price ceiling a maximum allowable price set
below the equilibrium price.


Rent control (establishing a limit on maximum rent) on
housing will cause a shortage of rental housing
The shortage will be greater in the long run, when there
is time to adjust the quantity of housing supplied
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The Unintended Consequences
of Rent Control
• Side payments
• Cost-cutting
discrimination
• Smokers?
• Children?
• Pets?
• College men?
• Poor maintenance
• Ghetto???
• …. Etc ???
3. THE MARKET FOR HEALTHCARE SERVICES
Learning Objectives
1. Use the model of demand and
supply to explain the effects of
third-party payers on the healthcare market and on health-care
spending.
THE MARKET FOR HEALTH-CARE
SERVICES
• There has been much discussion over the past
three decades about the health-care problem in
the United States.
• Much of this discussion has focused on rising
spending for health care
Health -Care Spending as a Percentage
of U.S. Output, 1960–2009
3.1 The Demand and Supply
for Health Care
• To assess the market forces
affecting health care, we will
focus first on just one of these
markets: the market for
physician office visits.
Total Spending for Physician Office
Visits
3.1 The Demand and Supply
for Health Care
•
A third party payer is an agent other than
the seller or the buyer who pays part of the
price of a good or service.
• Consumers use more than they would in the
absence of third-party payers
• Providers are encouraged to supply more
than they otherwise would.
• The result is increased total spending.
Total Spending for Physician Office
Visits Covered by Insurance