Transcript The Market

THE MARKET
Objectives
1.
Explain the concept of a market.
2. Understand the law of demand and the law of supply.
3. Differentiate between a change in quantity demanded (supplied) and a
change in demand (supply).
4. Explain the interaction of demand and supply and how the equilibrium price
is determined in the market.
5. Understand price elasticity and the total revenue approach for elasticity in
relating to market conditions.
6. Understand the concept of income elasticity and cross- price elasticity.
BOYCE FAMILY MARKET
 When is the last time you went to the market on a
Saturday?
 Have you really paid attention to what happens there?
 The local farmers market gives us a good glimpse into how markets
work; buyers are exposed to a variety of goods and services that vary in
quality. Do you think that the price of these products are “set in stone”
or will the prices fluctuate? How does this relate to the larger markets?
Fredericton Car Auction
How does an auction
differ from the farmers
markets that we are
familiar with?
How does an auction
compare to Ebay?
Auctions act slightly different than a farmers market as consumers/buyers take an active role
in determining a price for a vehicle. Although the buyers determine the final value the sellers
often start the bidding at a certain value. The more buyers at an auction and they more
money they have to spend will mean the higher the prices will be.
Regardless of the type of market they all establish a price and provide a place for an
exchange of goods and services.
 A market describes the interaction of buyers and sellers for
the purpose of making an exchange of goods or services
and establishing a price for them.
 Markets exist for any commodity or service that has a price.

TRADITIONAL MARKETS
 Markets do not need money to operate although money is used
as a medium of exchange in most markets.
 Prior to The Code of Hammurabi in ancient Babylon over 3700
years ago people have been exchanging some sort of currency.
 Before the creation of currency we still had a
market that relied on the barter system. Even
today we still have primitive societies that trade
goods and services with the exchange of money.
 When I go home at the end of a long work day I do not have any
tangible “good” that I can trade or sell. The papers that I mark and tests
that I correct do not have any value. Money solves this problem as it
gives a value to my occupation and what I do.
 In a traditional barter system two individuals would have to
find one another and exchange goods. This is often quite
difficult as both parties need to be present and willing. The
introduction of money also solves this issue as all parties
can exchange money for products and services.
 Can you think of any modern day example of an exchange
of goods or services without the use of money?
THE CONCEPTS OF DEMAND
 Consumers’ demand or desire for various goods and services is
represented by the quantity of goods and services they are
willing and able to purchase.
 Consumer preferences are transferred to the market in terms
of the goods and services that consumers buy.
The nature of the market is dependent on the
changes in consumer demands.
Ex.
The rise in beer enthusiasts, possible due to the
“hipster” generation has led to a demand for craft
beer.
FACTORS THAT AFFECT DEMAND
 Price – If you don’t think that price can affect demand then
just go to a Black Friday sale or to Future Shop on Boxing
Day. Keep in mind that consumers often purchase more
when a price is lower.
 Change in the price of substitute products – the price of
competing products can also influence demand for a
specific item.
 Ex – cheaper gift bags has made them an economical and
convenient substitute for wrapping paper.
 Change in the price of complementary products – a
complementary product is one that is used in conjunction
with the product in question.
 Ex. If mortgage rates increase less homes are purchased.
 Income – Changes in general levels of income have an effect
on product demands.
 Ex. When wages increase we often see sales of luxury items
increase. Foreign vacations and backyard pools are two
purchases that are linked to income increases.
 Tastes and Preferences – A major influence on consumer
demands in regards to preferences is advertising.
 Ex. The demand for organic food in local grocery stores.
 Expectations of future prices – If consumers anticipate an
increase for a product in the near future they will be more
likely to purchase more product in the present.
 Ex’ the stock market is a perfect example if this trend.
 Number and characteristics of buyers – As populations
continue to increase so will the demand for many products.
Not only will just the population affect demand but so will
the age of that population.
 Ex. The aging Baby Boomer generation has a ripple affect on
many markets.
 Expectations of future income – The increases and
decreases in salary will factor into the demands of
consumers.
 Ex. A family that has learned they will be expecting a child
will reconsider a larger purchase as the mother will
probably take maternity leave and have a reduced income.
TO MAKE THINGS EASIER…
In order to simplify the analysis of demand, all
factors influencing demand, other than price,
remain constant.
CONSUMER RESPONSE TO PRICE CHANGE
How do you respond to price changes?
When the price of a product increases consumers
may substitute towards a relatively cheaper
product
When the price of a product increases, less of the
product is purchased at the current level of
income.
The inverse relationship between price and
quantity demanded can be represented by a
demand schedule and graphically by a demand
curve.
The inverse relationship between price and
quantity demanded is referred to as the law of
downward-sloping demand.
CHANGES IN DEMAND
 Consumer demand for a product will change over time.
 What do you think will influence consumer demand for a
product such as sandwiches?
 Many factors will influence consumer demand, including:
competing products, changes to consumer income,
substitute pricing …
There is a difference between a change in demand
and a change in quantity demanded.
But a change in the good’s own price leads to a
change in the quantity demanded NOT a change to
the entire demand.
A change in a constant factor affecting demand will
change the entire demand for a good or service.