1 / 16

Chapter 4 PART 1

The Market Forces of Supply and Demand. Chapter 4 PART 1. Markets and Competition. Market – a group of buyers and sellers of a particular good or service. The buyers as a group determine the demand for the product Markets can be highly organized or not very organized. Competitive Market.

badu
Télécharger la présentation

Chapter 4 PART 1

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Market Forces of Supply and Demand Chapter 4 PART 1

  2. Markets and Competition • Market – a group of buyers and sellers of a particular good or service. • The buyers as a group determine the demand for the product • Markets can be highly organized or not very organized

  3. Competitive Market • Describes a market in which there are so many buyers and sellers that each has a negligible impact on the market price • In this chapter we assume that markets are perfectly competitive – the highest form of competition. In order to have perfect competition, a market must have 2 characteristics:

  4. 1. the goods offered for sale are identical • 2. the buyers and sellers are so numerous that no one has any influence over price (called “price takers”) • Example: wheat market • Most markets are NOT perfectly competitive and fall between perfect competition and monopoly

  5. DEMAND • Quantity Demanded – the amount of a good buyers are willing and able to buy. • Quanitity demanded and Price are negatively related • Law of Demand – the quantity demanded falls as price rises • Demand schedule – table that shows the relationship b/t the price of a good and the Qd.

  6. Catherine’s Demand Schedule

  7. 1. A decrease in price ... 2. ... increases quantity of cones demanded. Figure 1 Catherine’s Demand Schedule and Demand Curve Price of Ice-Cream Cone $3.00 2.50 2.00 1.50 1.00 0.50 Quantity of 0 1 2 3 4 5 6 7 8 9 10 11 12 Ice-Cream Cones

  8. Individual vs. Market Demand • The market demand is the sum of all the individual demands for a particular good or service • *****THE ONLY THING THAT CHANGES THE Qd IS CHANGES IN PRICE!*****

  9. The Market Demand Curve The market demand at $2.00 will be 7 ice-cream cones. When the price is $2.00, Nicholas will demand 3 ice-cream cones. When the price is $2.00, Catherine will demand 4 ice-cream cones. The market demand curve is the horizontal sum of the individual demand curves! + = Nicholas’s Demand Catherine’s Demand Market Demand Price of Ice-Cream Cone Price of Ice-Cream Cone Price of Ice-Cream Cone 2.00 2.00 2.00 1.00 1.00 1.00 13 7 3 5 4 8 Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones When the price is $1.00, Catherine will demand 8 ice-cream cones. The market demand at $1.00, will be 13 ice-cream cones. When the price is $1.00, Nicholas will demand 5 ice-cream cones.

  10. B $2.00 4 Changes in Quantity Demanded A tax on sellers of ice-cream cones raises the price of ice-cream cones and results in a movement along the demand curve. Price of Ice-Cream Cones A 1.00 D 0 8 Quantity of Ice-Cream Cones

  11. Change in Demand: Shifts in the Demand Curve • Many things can cause a shift, here are the most important: • Income – If the D for a good falls when income falls, it is a normal good; if the D for a good rises when income falls, it is an inferior good • Prices of Related Goods: Substitutes – an increase in the P of one causes an increase in the D of the other Complements – an increase in the P of one causes an decrease in the D of the other

  12. Examples • Butter and margarine? • PB and J? • Razor handles, razor blades? • Cereal and milk? • Apples and oranges?

  13. Tastes – can change over time • Expectations – about the future may affect your demand today. Ex: expecting a raise • # of buyers – fewer or more buyers in market

  14. Consumer Income Normal Good Price of Ice-Cream Cone $3.00 An increase in income... 2.50 Increase in demand 2.00 1.50 1.00 0.50 D2 D1 Quantity of Ice-Cream Cones 0 1 2 3 4 5 6 7 8 9 10 11 12

  15. Consumer Income Inferior Good Price of Ice-Cream Cone $3.00 2.50 An increase in income... 2.00 Decrease in demand 1.50 1.00 0.50 D2 D1 Quantity of Ice-Cream Cones 0 1 2 3 4 5 6 7 8 9 10 11 12

  16. Increase in demand Decrease in demand Demand curve, D 2 Demand curve, D 1 Demand curve, D 3 Figure 3 Shifts in the Demand Curve Price of Ice-Cream Cone Quantity of 0 Ice-Cream Cones

More Related