Transcript Aim: - How is demand like an auction?

How is demand like an
auction?
Demand
• the amount of goods or services
consumers are willing and able to buy
at a certain price
• downward sloping – inverse
relationship between price and demand
– slope of the line is determined by the
degree to which buying behavior
changes in response to price
• Consumers buy more of a good or
service at lower prices and less at
higher prices
Change in Quanitity Demanded v.
Change in Demand
• change in quantity Demanded – only
caused by a change in the price of a
good or service – it is movement along
the Demand curve
• change in Demand – more or less of a
good or service is demanded at every
price
Shift in the Demand Curve
• to the right – when the quantity
demanded rises at all possible prices
• to the left – when the quantity
demanded falls at all possible prices
Variables that can lead to shift in Demand
• change in the environment
• change in the items usefulness
• change in income
• change in the price & availability of
substitutes
• change in the price & availability of
compliments
• change in tastes and preferences, style
• change in technology
• change in future expectations
Law of diminishing marginal utility
People do not necessarily want more
and more of the same product,
sooner or later the satisfaction or
utility of each additional unit
becomes less and less – people are
stimulated by variety.
Elasticity of Demand
• degree to which buying behavior
changes in response to price
• elastic demand
– if the percentage change in quantity
demanded is greater than the percentage
change in price
– relatively flat slope: a small shift in
price will cause a larger shift in demand
– many substitutes, expensive, time to
adjust, easy to delay purchase
• inelastic demand
– if the percentage change in quantity
demanded is less than the
percentage change in price
– relatively steep slope: insensitive to
price change
– few substitutes, inexpensive, must
buy now, difficult to delay purchase
Why do producers react in
the market?
Supply
• the amount of goods or services that
producers are willing and able to sell at
a certain price
• positive slope – this reflects the fact
that consumers are willing and able to
pay higher and higher prices – price
and quantity are directly related
Change in Quanitity Supplied v.
Change in Supply
• change in quantity Supplied – only
caused by a change in the price of a
good or service – it is movement along
the Supply curve
• change in Supply – change in the
amount of a product produced as a
result of changes in costs, input prices,
technology, not price
Shift in the Supply Curve
• a shift indicates a change in the amount
of goods and services that will be
supplied with no change in price
– to the right – more goods supplied at
each price
– to the left – need a higher and higher
price than before to encourage
production
Determinants of Supply
• change in resource price or input
prices
• change in technology
• change in taxes and subsidies/govt
policy
• change in the price of other goods
• change in producer expectations
• change in the number of suppliers
What happens when supply
meets demand?
Equilibirum
• forces of supply and demand are in
balance
• sellers and buyers are happy – the
amount sellers wish to sell is equal to
the amount that buyers wish to buy
• clears the market of any surpluses or
shortages
• When quantity demanded
exceeds quantity supplied,
prices tend to rise - when the
price in the market increases,
quantity demanded falls, and
quantity supplied rises until an
equilibrium or market-clearing
prices is reached.
When quantity supplied exceeds
quantity demanded, the price tends
to fall - when the price falls,
quantity supplied is likely to
decrease, and quantity demanded is
likely to increase until an
equilibrium or market-clearing
prices is reached.
•
Price ceiling is the maximum price
that can legally be charged for a
product. The fairness rationale is that
the price ceiling will keep the product
from being so expensive that the poor
can’t afford it. This does not solve
the problem of excess demand for the
product, which can lead to a black
market for the product.
A price floor is the minimum price
that must be paid for a product.
The result is excess supply.