6. Estrategia de control
6.6 Diseño y compensación de sistemas de control….91
The supply and demand model is the first and simplest model that we encounter.
Recall that a model is a simplification of reality that allows economists to isolate particular economic forces. A good model allows economists to make predictions and provide explanations about the world quickly and easily.
Unlike physicists and chemists, economists and other social scientists find it difficult to conduct experiments: It is far more difficult to control what people do than it is to control substances in a test tube. Even if economists were physi-cally able to control what people do, ethical and legal considerations would make most experiments unfeasible. For example, it would be very hard—and certainly undesirable—for an economist studying bankruptcy to force a person or firm to go bankrupt. Instead, economists rely on theoretical and statistical models of market structure to make reliable predictions about behavior.
For all its simplicity, the supply and demand model has remarkable power to explain the world around us. At the same time, we must be careful to use the model under the appropriate circumstances. The supply and demand model is most suitable when there are many buyers and sellers of a homogeneous good (i.e., all suppliers are selling the same product), and consumers have good infor-mation about available prices across sellers.
Supply and demand show us how producers and consumers respond to price changes. Together, they determine how much of a good or service is pro-duced and what value society places on it. In a different course, we might use these tools to analyze the financial meltdown of 2008 or the impact of a higher minimum wage on employment. In this section, we introduce the concepts of sup-ply and demand and use them to show why Mickey Mantle cards cost so much more than Hank Aaron cards.
demand, Supply, and equilibrium
An individual consumer’s demand for baseball cards (or for any good or service) is the relationship between the price of those cards and the number of cards that he or she is willing and able to buy. It is a sequence of answers to the question,
“If baseball cards cost this much, how many of them would you buy?” Or, from the firm’s perspective, “How many would we be able to sell?” We compute the market demand, which shows the quantity that all consumers combined pur-chase at each price by summing the individual demand curves, that is, by adding the quantity that each consumer purchases at each price. Figure 2.1 shows the market demand curve for a specific player’s baseball card. Note that the curve
is downward sloping, as the relationship between price and quantity is invariably negative. As the price of cards falls, the number of cards that consumers buy rises.
Economists call the negative relationship between price and quantity the law of demand. A change in a good’s price causes a change in quantity demanded, moving quantity up along the demand curve when the price rises and down the demand curve when the price falls.
The supply of baseball cards relates price to the number of cards that sellers are willing and able to provide. Unlike consumers, who view the price of an item as the sacrifice they must make, producers view the price as a reward. As a result, higher prices encourage producers (sellers) to offer more cards. For existing cards, an increase in the price gives more card owners an incentive to offer their cards for sale. In addition, sellers have an incentive to produce more new cards as the price rises. At the same time, other producers have an incentive to stop what they are doing and start producing cards. Some economists call the positive relationship between price and quantity the law of supply.
Similar to market demand, the market supply curve is the sum of the indi-vidual supply curves. The market supply curve is typically upward sloping, as seen in Figure 2.2. Again, if the price of cards changes, the quantity moves along the supply curve, a movement that economists call a change in quantity supplied.
Taken alone, market demand says nothing about the amount consumers actually buy or the price they pay. Similarly, market supply alone does not say how much producers sell or the price they receive. To find out what happens in the marketplace, one must look at supply and demand together. Figures 2.3a and 2.3b show that the two curves cross at the point labeled e. Economists call e the equilibrium point because at that point, the actions of consumers and produc-ers are in balance. Consumproduc-ers are willing and able to buy Qe cards at the price
D p ($ per card)
Q (quantity of cards) 0
FIgure 2.1 The Demand for Baseball Cards
As the price of baseball cards falls, the quantity demanded rises.
pe, which is exactly the quantity that producers are willing and able to sell at that price. As a result, neither consumers nor producers have any desire to alter their actions; thus, the price stays at pe, and the quantity at Qe.
Figure 2.3a shows that, at a price higher than pe (such as ph), disequilibrium occurs because producers want to sell Qs while consumers want to buy only Qd.
S
0
p ($ per card)
Q (quantity of cards) FIgure 2.2 The Supply of Baseball Cards
As the price of baseball cards rises, the quantity supplied also rises.
Qd Qe
Qe Qs
pe
pl
S
D e
e
0
p ($ per card)
Q (quantity of cards) Qs
Qd ph
pe
S
D
0
p ($ per card)
Q (quantity of cards)
(a) A price of ph results in excess supply (b) A price of pl results in excess demand FIgure 2.3 Equilibrium in the Baseall Card Market
Equilibrium occurs at price pe, where the supply and demand curves meet.
Unable to sell all the cards they want, producers face a surplus or excess supply.
Frustrated producers lower their prices in order to attract more customers. The lower price encourages consumers to buy more cards and discourages producers from selling them. As Qd rises and Qs falls, the excess supply falls until it equals zero, and equilibrium is restored at pe.
Figure 2.3b shows that, at a price below the equilibrium (p1), buyers want to purchase Qd cards while sellers want to sell only Qs. The shortage or excess demand for cards at p1 drives the price upward until the shortage disappears at pe.
We cannot actually see the supply and demand curves of the products we consume. We do, however, observe equilibrium prices. For example, baseball trading card prices are published regularly in price guides. In 1955, the Bowman Company produced a set of cards known as the “TV set,” with pictures of players appearing on the face of the card bordered by what appears to be a television set.
Included in that set are the cards of Mickey Mantle, perhaps the greatest switch-hitting power hitter ever, and Hank Aaron, who was Major League Baseball’s all-time home run leader from 1974 to 2007.
According to the Beckett Baseball price guide, which tracks card values, the March 2012 prices of Mantle and Aaron cards from the 1955 Bowman set were
$800 and $250, respectively.2 Such a large difference in price is difficult to justify, given that Hank Aaron had more home runs (HR), hits (H), runs scored (R), runs batted in (RBI), and a higher batting average (Avg) than Mantle (see Table 2.1). We can use the simple supply and demand model as an analytical tool to investigate the difference in prices. Because the forces of supply and demand determine prices, the explanation must lie in differences in supply, in demand, or in both.
changes in Supply and demand
The supply and demand relationships are not permanently fixed. They can change for many different reasons. This section reviews why the supply or demand curve might shift and the effects that shifts have on the equilibrium price and quantity.
FactorS that aFFect the locatIon oF the demand curve Economists call a shift of the demand curve a change in demand. A change in demand stems from a change in any of the five underlying factors: consumer income, the prices
table 2.1 Career Statistics of Hank Aaron and Mickey Mantle
AB H R HR RBI Avg Card Price
Hank Aaron 12,364 3,771 2,174 755 2,297 .305 $250
Mickey Mantle 8,102 2,415 1,677 536 1,509 .298 $800
Sources: Player statistics are from MLB.com; Card prices are from Beckett Baseball, March 2012, p. 34.
2Beckett Baseball, March 2012, p. 34.
of substitutes or complements, consumer tastes, the number of consumers in the market, and the expectations that consumers hold.
We have seen that consumers typically buy more of a good if their incomes increase, but frequent exceptions exist. If a hockey fan living in Providence, Rhode Island, gets a raise, he might buy more hockey cards of the Providence Bruins, the local minor league team. Alternatively, he might buy fewer cards of the Providence Bruins and more cards of the National Hockey League’s (NHL’s) Boston Bruins. If he buys more cards of the Providence Bruins as his income rises, then the cards are normal goods. normal goods get their name because consum-ers normally buy more of a good or service when their incomes rise. If the fan buys fewer cards, then the cards are inferior goods. inferior goods need not be undesirable or poorly made. One simply buys less of them as one’s income rises.
If hockey fans buy fewer Providence Bruins cards when their incomes fall, it seems reasonable to conclude that they would go to fewer hockey games as well. We can also ask whether the recession of 2008–2009 had a negative impact on professional sports or are sports “recession-proof”? The evidence from the recent recession is mixed. Attendance at the four major sports in 2008 and early 2009 was not significantly below previous levels, but all else was not held equal, as incomes fell. Some NBA teams sold tickets at significant discounts to prop up attendance.
According to ESPN.com, the Memphis Grizzlies drew about as many fans in 2008–2009 (about 12,600 per game) as they did in 2007–2008 (12,770), but they sold their tickets so cheaply that the team’s gross revenue per game was only $300,000, an average of less than $24 per fan.3 Similarly, some Major League Baseball teams discounted 2009 season tickets by up to 25 percent, and the New York Yankees were forced to cut the prices of some premium seats in the new ballpark by half.4
The major North American sports leagues do have a safety net in the form of long-term TV contracts. As long as recessions do not outlast these contracts, the guaranteed income of these contracts helps to sustain teams. Sports and ath-letes that rely heavily on year-to-year sponsorships, such as golf and tennis, are in a more vulnerable position. Formula-1 and the National Association for Stock Car Auto Racing (NASCAR) were particularly hard-hit by the downturn, as they rely heavily on sponsorships by car manufacturers that were devastated by the recession.5 Similarly, the Ladies Professional Golf Association (LPGA) reduced its tournament schedule from 34 events in 2008 to 31 in 2009 and total prize money fell by about $5 million.6
3Bill Simmons, “Welcome to the No Benjamins Association,” ESPN.com, February 27, 2009, at http://
www.espn.go.com.
6Ron Sirak, “LPGA Facing Economic Realities,” Golf Digest, November 18, 2008, at http://www.
golfdigest.com/golf-tours-news/2008-11/20081119sirak, viewed April 30, 2012.
5Sean Gregory and Steve Goldberg, “Daytona Drag: NASCAR Tries to Outrace the Recession,” Time, February 12, 2009, at http://www.time.com/time/business/article/0,8599,1879136,00.html.
4Jon Birger, “Baseball Battles the Slump,” CNNMoney.com, February 19, 2009, at http://money.cnn.
com/2009/02/18/magazines/fortune/birger_baseball.fortune/index.htm; and Richard Sandomir,
“Yankees Slash the Price of Top Tickets,” The New York Times, April 28, 2009, at http://www.
nytimes.com/2009/04/29/sports/baseball/29tickets.html?_r=1&scp=4&sq=+%20yankees%20+%
20%22ticket%20prices%22&st=cse.
When the price of a substitute good increases, the demand curve shifts to the right. If a card collector views Mickey Mantle cards and Yogi Berra cards as rea-sonable substitutes, an increase in the price of Yogi Berra cards causes the demand curve for Mickey Mantle cards to shift to the right.
The opposite effect occurs when the price of a complement increases. For example, older cards need protection from bending and other mishaps that reduce the value of the card. The best way to prevent such accidents is to keep the cards in protective sleeves. If the price of the sleeves rises, the demand for cards falls. This occurs because collectors use the two products together and think of them as a single commodity. When the price of sleeves rises, the price of a card with a sleeve also rises, reducing demand for cards. Figure 2.4a shows the impact of an increase in income and a reduction in the price of a substitute good on the demand curve.
In his book The Blind Side, Michael Lewis provides an interesting example of how tastes can affect the demand for a specific service.7 Lewis notes that, until the 1980s, offensive linemen were regarded largely as interchangeable units and were among the lowest paid players on a football team. Today, left tackles are among the most highly paid players on the team. The premium paid to left tackles repre-sents a change in tastes by football teams that have increasingly emphasized the forward pass.
The growing emphasis on the forward pass has made quarterbacks the stars of their teams and made protecting them a priority. It has become particularly
Increase
FIgure 2.4 Changes in the Demand for and Supply of Baseball Cards Demand and supply curves can shift left or right.
7Michael Lewis, The Blind Side: Evolution of a Game (New York: W. W. Norton, 2006).
important to protect quarterbacks from behind, their “blind side,” where they cannot see oncoming defenders. This required players big enough to stand up to defensive ends but fast enough to move over to block linebackers. Left tackle (which protects a right-handed quarterback’s blind side) thus became a unique—
and highly paid—position.
Another example of the impact of tastes on prices can be found in ticket prices charged by Major League Baseball teams. Traditionally, teams have charged a fixed price for a given seat location, regardless of the opponent. Recently, they have started to behave more like European soccer teams or Japanese baseball teams by charging higher prices when more popular teams, such as the New York Yankees or the Boston Red Sox, come to town in a strategy known as vari-able ticket pricing. Some teams, such as the San Francisco Giants, even change ticket prices based on pitching matchups. The practice of altering ticket prices after the season begins is known as dynamic pricing. We will return to this con-cept in Chapter 4, but even with our simple model of supply and demand, we can predict that, because the supply of seats is the same regardless of whom the visiting team is, differences in price must reflect changes in the demand curve.
The demand curve for teams like the Red Sox and Yankees is farther to the right than for most other teams because of the greater taste of fans for seeing these teams play.8
Finally, expectations of future prices can affect demand. A collector who believes that the prices of cards will rise in the near future is willing to buy more cards at any given price than a collector who believes that prices will remain stable. The expectation of a price increase shifts the collector’s demand curve to the right. Similarly, if the collector believes that prices will fall, his demand curve shifts to the left.
FactorS that aFFect the locatIon oF the Supply curve As was the case for demand, the position of the supply curve also depends on several underlying fac-tors. A change in supply results from a change in input prices, technology, taxes, expectations held by producers, and natural events that destroy or promote prod-ucts or resources.
In the case of baseball cards, if the price of paper products rises, the cost of producing each baseball card rises as well. At any given price, the net return to making and selling cards is lower than before, and the incentive to provide cards falls. Card manufacturers produce fewer cards at any given price, and the supply curve shifts to the left from S0 to S1 in Figure 2.4b.
A technological innovation that reduces the cost of making cards increases the profitability of making cards and encourages producers to make and sell more cards. The increase in technology shifts the supply curve rightward to S2.
A sales tax on cards introduces a wedge between the price the consumer pays and the price the producer receives. The difference between what the consumer
8Joshua Brustein, “Star Pitchers in a Duel? Tickets Will Cost More,” New York Times, June 27, 2010, at http://www.nytimes.com/2010/06/28/technology/28tickets.html, viewed February 23, 2012.
pays and what the producer receives means that the market has two supply curves, as seen in Figure 2.5. Figure 2.5 shows that the vertical difference between the two supply curves equals the amount of the per-unit tax. For example, a $0.10 per-card tax on producers results in a new supply curve that lies $0.10 above the original.
The price that consumers must pay (pt) is determined by the intersection of the demand curve with the supply curve that includes the tax. Quantity decreases to Qt because consumers are willing to purchase fewer cards at the higher price.
The price that sellers receive is the price for Qt cards on the original supply curve and is equal to the price that consumers pay minus the tax (pt - t). The difference between the price that consumers pay and the price that sellers receive is the per-unit tax, t. Multiplying the per-per-unit tax by the number of cards sold, Qt, yields the tax revenue collected by the government. In Figure 2.5, this area is shaded gray.
Natural disasters can also affect the location of the supply curve. If a hur-ricane damaged the card factory, it would temporarily reduce the availability of new cards. The world saw stark evidence of this type of event when a major earthquake struck Japan in 2011. The quake and ensuing tsunami damaged many factories and a major nuclear energy facility, temporarily disrupting the produc-tion of products such as autos worldwide, as even non-Japanese automakers scrambled to find alternative suppliers of parts normally produced in Japan.9
D S0 S0 + tax
0 pt pt− t p0
Q0 Qt
tax p ($ per card)
Q (quantity of cards)
FIgure 2.5 A Change in Supply Due to a Tax
A tax causes consumers to see the curve S0+ tax while producers still act along S0.
9“Japan’s Earthquake and Tsunami Hit Parts Supplies,” Motor Trend, June 2011, at http://www.
motortrend.com/features/auto_news/2011/1106_japan_earthquake_tsunami_hit_parts_supplies/
viewall.html, viewed February 23, 2011.
Closer to home, the New Orleans Saints were unable to play any home games during the 2005 season due to the damage to their home stadium caused by hurricane Katrina, reducing the supply of NFL games in New Orleans to zero for the season.10
Finally, if producers expect prices to rise in the future, they have an incentive to wait until prices rise before selling their product. At any price, producers are willing to provide less today, thinking that they will be able to sell for more tomor-row, and the supply curve shifts to the left.
elaStIcIty oF Supply Economists are often less interested in how much produc-ers produce than in how sensitive their production decisions are to changes in
elaStIcIty oF Supply Economists are often less interested in how much produc-ers produce than in how sensitive their production decisions are to changes in