The market Forces of Supply and demand Chapter 4
The Market Forces of Supply and Demand Chapter 4
The market forces of Supply and demand Supply and Demand are the two words that economists use most often o Supply and Demand are the forces that make market economies work o Modern microeconomics is about supply, demand and equilibrium
The Market Forces of Supply and Demand • Supply and Demand are the two words that economists use most often. • Supply and Demand are the forces that make market economies work. • Modern microeconomics is about supply, demand and equilibrium
Markets o a market is a group of buyers and sellers of a particular good or service The terms supply and demand refer to the behavior of people.. as they interact with one another in markets o The buyers as a group determine the demand o The sellers as a group determine the supply
Markets • A market is a group of buyers and sellers of a particular good or service. • The terms supply and demand refer to the behavior of people … as they interact with one another in markets. • The buyers as a group determine the demand. • The sellers as a group determine the supply
Market Type A competitive market is a market in which with many buyers and many sellers that is not controlled by an ty one person in which a narrow range of prices are established that buyers and sellers act upon
Market Type A competitive market is a market in which • … with many buyers and many sellers • … that is not controlled by any one person • … in which a narrow range of prices are established that buyers and sellers act upon
Competition: Perfect and otherwise Perfect competition: e Products are all the same Numerous buyers and sellers so that each has no influence over the price Buyers and sellers are price takers no entry barriers
Competition: Perfect and otherwise Perfect competition: • Products are all the same • Numerous buyers and sellers so that each has no influence over the price • Buyers and sellers are price takers • No entry barriers…
Competition: Perfect and otherwise o Monopoly One seller, seller controls price ● Oligopo Few sellers Not always aggressive competition Monopolistic Competition Many sellers Slightly differentiated products Each seller may set price for its own product
Competition: Perfect and otherwise • Monopoly: – One seller, seller controls price • Oligopoly: – Few sellers – Not always aggressive competition • Monopolistic Competition: − Many sellers − Slightly differentiated products − Each seller may set price for its own product
Demand o Quantity demanded is the amount of a good that buyers are willing and able to purchase The Law of Demand states that, ceteris paribus there is an inverse relationship between price and quantity demanded( Giffen Goods Ceteris paribus is a latin phrase that means all variables other than the ones being studied are assumed to be constant. Literally, it means other things being equal
Demand • Quantity demanded is the amount of a good that buyers are willing and able to purchase. • The Law of Demand states that, ceteris paribus, there is an inverse relationship between price and quantity demanded (Giffen Goods ). • Ceteris paribus is a Latin phrase that means all variables other than the ones being studied are assumed to be constant. Literally, it means other things being equal
Demand schedule and curve Price of ice- Cream Cone 300 Price Quantity 0.00 2.50… 0.50 1.00 2.00 1.50 2.00 1 50 2.50 2086420 3.00 1.00 0.50 ………… Quantity of 0123456789101112 e-Cream Cones
Demand Schedule and Curve $3.00 2.50 2.00 1.50 1.00 0.50 1 2 3 4 5 6 7 8 9 10 11 12 Price of IceCream Cone Quantity of Ice-Cream Cones 0 Price Quantity $0.00 12 0.50 10 1.00 8 1.50 6 2.00 4 2.50 2 3.00 0
Market demand Marker demand refers to the sum of all individual demands for a particular good or service o Graphically, individual demand curves are summed horizontally to obtain the market demand curve
Market Demand • Marker demand refers to the sum of all individual demands for a particular good or service. • Graphically, individual demand curves are summed horizontally to obtain the market demand curve
The market demand curve d at e-cream icetrethecenediviaelarbadheonesnd curves! cones Catherines Demand Nicholas's Demand Market demand Price of ice Price of ice. Price of Ice- Cream Cone Cream Cone Cream cone 2.00 1 Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones When the price is $1.00, When the price is $1.00 The market demand at Catherine will demand 8 Nicholas will demand5 $1.00, will be 13 ice-cream Ice-cream cones Ice-cream cones cones
The Market Demand Curve Price of IceCream Cone Price of IceCream Cone Price of IceCream Cone 2.00 2.00 2.00 4 3 7 1.00 1.00 1.00 8 5 13 Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones Catherine’s Demand + Nicholas’s Demand = Market Demand When the price is $2.00, Catherine will demand 4 ice-cream cones. When the price is $2.00, Nicholas will demand 3 ice-cream cones. The market demand at $2.00 will be 7 ice-cream cones. When the price is $1.00, Catherine will demand 8 ice-cream cones. When the price is $1.00, Nicholas will demand 5 ice-cream cones. The market demand at $1.00, will be 13 ice-cream cones. The market demand curve is the horizontal sum of the individual demand curves!