Transcript The Market Forces of Supply and Demand - mrski-apecon-2008

Chapter 4
The Market Forces of Supply and
Demand
What is a Market?
A market is where people trade and
goods and services are exchanged.
2
Markets are not organized
However, buyers and sellers create a
market
For example, if buyers were famished they
would buy burgers to delight their stomach,
and the burger sellers sell their burgers so
their business is successful.
*Bold words*
are new key
terms that
you should
understand!
A Certain type of market
Competitive market
Where buyers and seller, each of whom
has little or absolutely no influence on the
market price.
Are there many Competitive markets in
the U.S?
Perfectly competitive vs Not perfectly competitive marke
A perfectly competitive market is when buyers and
sellers buy and sell at the certain price
( People must accept the price)
When there is only one seller and he/she sets the price
is called a monopoly (Not perfectly competitive).
We are going to start off by explaining the
characteristics of buyers
What is quantity demanded?
What is the law of demand?
What is a demand schedule?
Demand
What is demand?
The desire of
purchasers,
consumers, clients,
employees, etc...
What is the demand curve?
A demand curve is a
graph that shows the
relationship between the
price and a certain
material.
Why use demand
curves?
To assume behaviors in
competitive markets and
to find the equilibrium
price.
Understand the demand curve
New key terms
1. The willingness to buy an
Quantity
amount of good.
demanded(QD)
2. When the QD of a good
goes down the price goes up
Law of Demand
3. A table that shows the relationship
Demand schedule
between the price of a good
and the QD
What you just saw was a
demand schedule and
demand curve.
Remember!
the demand schedule shows
Notice that the graph is
the
“quantity
demanded”
the relation of price and
at each price.
quantity demanded.
The demand schedule
shows the “quantity
demanded” at each
price.
demand curve
The demand curve
usually slopes
downwards from left to
right
Each price of the sum of
the two people’s
demands is the market
demand.
Demand curves usually
shows an individual’s
demand for a product.
Shifts in the demand curve
Income
Prices of Related Goods
Tastes
Expectations
Number of buyers
Shifts
INCOME
If you just got fired and
penniless, what would your
demand for polas be?
When your income falls and
the demand for good falls as
well, it is called a normal good
On the other hand if the
demand for a good rises but
your income goes down it’s an
inferior good.
Examples
An example of a normal
good is video games. If
your income falls you will
buy less video games.
An example of inferior
goods are bus tickets.
Instead of riding the taxi,
if your income falls you
would ride the bus.
Prices of related goods
Nike has a 30% sale until
next week. If Nike was
cheaper than Adidas, you
would buy more Nike
products. In this case
Nike and Adidas are
substitutes.
If you decide to buy
basketball shorts you
sure want to buy a jersey
that fits with it. In this
case the jersey and
shorts are complements.
Tastes
Nothing tastes better
than a Double whopper.
If something tastes
marvelous wouldn’t the
buyer buy more of it?
DUHHH
Expectations
Depending on your
expectations beyond
ahead of time, may have
an affect on your
demand of a good.
Lets say you think ipods
will cost 140$ less in 2
years. This will make you
not buy an ipod.
Number of Buyers
Market demand depends
on factors that determine
the demand of the
buyers’ income, tastes,
expectation.
If Becky wanted to shop
with her friends, the
quantity demanded in
the market would
increase at all prices.
How to draw the demand curve with shifts
http://www.youtube.com/watch?v=
5ryVqsvbwoE&feature=related
!!!!!!!
Demand refers to the
overall demand for a
good or service and
"shifts" only when there
is a change in income,
taste.
However, quantity
demanded refers to a
specific quantity of a
good or service
consumers are willing to
purchase at a given
price.
Quick review
1.What is a monopoly?
2.What is a demand schedule?
3.What 5 things shifts the demand curve?
Supply
If we learned about demand what is the
supply?
the act of supplying, furnishing, providing,
satisfying.
In short, the behavior of sellers.
What is the supply curve?
The relationship between price and quantity supplied.
Why use the Supply Curve?
To assume behaviors in competitive markets and to find
the equilibrium price.
Understand the Supply Curve
Quantity Supplied
The amount of something that a seller is willing to
sell
Law of Supply
When the quantity supplied rises, the price rises
Supply Schedule
A table that shows the relationship price vs quantity
supplied
Supply Curve
What you just saw was a supply schedule and supply
curve.
Hold On!
the
supply
schedule
shows
Notice that the graph is the
relation
of price
and quantity
supplied.
the “quantity supplied”
at each price.
The supply schedule shows the “supply demanded” at
each price.
Supply Curve
The Supply curve usually slopes Upwards from left to right
The supply curve is to show the quantity supplied on the xaxis (independent variable) , price on the y-axis (dependent
variable).
Shifts in supply curve
Input prices
Technology
Expectations
Number of Sellers
Input prices
If you were a pizza seller and cheese costs more than
before. Then your basically in trouble! Because cheese is
more expensive you would choose not to sell as much as
Sigh...
before!
Technology
If machines can create faster and pizza. Why waste
money and time on labor? If technology improves so will it
raise the supply of pizza.
Expectations
If you think that Pizza will rise $2 per pan after 2 weeks,
you would definitely store some pizzas right now and sell
them later with more cash!
Number of Sellers
If you thought you were too cool for the job and decided to
quit. The supply in the market would fail because of your
act.
What is created when the
supply and demand are
together?
EQUILIBIRUM
When the market price is at which
quantity supplied and the
quantity demanded are the same
A few more vocabs!
Equilibrium price
At a market price the supply of a good equals the
quantity demanded
Equilibrium quantity
The quantity supplied or demanded at the equilibrium
price
Surplus
Shortage
Surplus
Su
When does a surplus occur?
When the quantity supplied is greater than the quantity
demanded.
In this case the suppliers are unhappy
Shortage
The opposite of surplus
A shortage occurs when the quantity demanded is greater
than the quantity supplied.
In this case the demanders are not happy.
Wait!
When the demand or the supply curve shifts what
happens to the equilibrium!?!?!?
A new equilibrium is formed!
Point A is the initial E point and Point B is the new E point.
Explanation of changes in
Supply and Demand
http://www.youtube.com/watch?v=Z44kKMJm9NY&featur
e=related
Quick Review
4. When does a shortage occur?
5. What are normal goods? give examples.
6. Why do economists use the demand curve.
Answers
Forcharacterized
Review
1. Monopolies
are thus
by a lack of
economic competition for the good or service.(a
specific individual or enterprise has sufficient control
over a particular product or service to determine
significantly the terms on which other individuals shall
have access to it)
2. A demand schedule is a table that shows the
relationship between the price of a good and the
quantity demanded
3. Income, Prices of Related Goods, Tastes,
Expectations
Answers for Review
4.A situation in which quantity supplied is greater than
quantity demanded
5.normal goods is a good for which, other things equal,
an increase in income leads to an increase in demand.
example) ice-cream:)
6. To analyze how markets work, to show an
individual’s demand for a product.