Principles of Microeconomics_Mini-case 3.pdf

supply theory & market equilibrium

1. SUPPLY THEORY &
MARKET EQUILIBRIUM
Hoang Thanh An - 2412155043
Principles of Microeconomics
Assignment 3: Mini-case 3

2. The Law of Supply states that there is a direct relationship between price
and quantity supplied: as price increases, quantity supplied increases,
and vice versa.
SUPPLY THEORY
Factors affecting supply:
Production costs (wages, raw
materials...)
Technology advancements
Government policies (taxes,
subsidies...)
Number of sellers in the market
Expectations of future prices

3. Equilibrium: the point where quantity
supplied equals quantity demanded
MARKET EQUILIBRIUM
Surplus:
supply > demand
-> price reduction.
Shortage:
demand > supply
-> price increase.

4. SHIFTS IN SUPPLY AND DEMAND
Supply shifts left (decrease)
→ Price ↑, Quantity ↓
Supply shifts right (increase)
→ Price ↓, Quantity ↑

5. SHIFTS IN SUPPLY AND DEMAND
Demand shifts left (decrease)
→ Price ↓, Quantity ↓
Demand shifts right (increase)
→ Price ↑, Quantity ↑

6. -> The regulation affects demand by making EVs more affordable and more financially
attractive, leading to higher sales and prices in the EV market
ELECTRIC VEHICLES MARKET
Before Regulation: Equilibrium (E1) at
initial price (P1) and quantity (Q1)
After Regulation:
The exemption reduces the total cost
of purchasing an EV, therefore, an
increase in demand for EVs occurs,
shifting the demand curve to the
right.
The regulation does not directly affect
the cost of production for EV
manufacturers so the supply curve
remains unchanged.
New equilibrium (E2) at higher
quantity (Q2) and higher price (P2)

7. PETROL VEHICLES MARKET
Before Regulation: Equilibrium (E1) at
initial price (P1) and quantity (Q1)
After Regulation:
The exemption for EVs makes petrol
vehicles less attractive due to higher
registration costs, a decrease in
demand for petrol vehicles occurs,
shifting the demand curve to the left.
The regulation does not directly affect
the cost of production for petrol
vehicles manufacturers so the supply
curve remains unchanged.
New equilibrium (E2) at lower
quantity (Q2) and lower price (P2)
-> The regulation affects demand for petrol vehicles by making them less attractive
compared to EVs, leading to lower sales and prices in the petrol vehicle market

8. THANK YOU