a market is an institution in which buyers and sellers exchange goods and services for a medium of...
TRANSCRIPT
A market is an institutionin which buyers and
sellers exchange goodsand services for
a medium of exchange--money
Markets, demand, and supply
Definitions:
Demand: The quantities of a good or service buyers are willing (and able) to buy at alternative market prices, ceteris paribus.
Quantity demanded: The quantity of a good or service buyers are willing (and able) to buy at a specific price, ceteris paribus.
Demand curve: The schedule indicating the quantities demanded of a good or service at alternative market prices, ceteris paribus.
Law of demand: ceteris paribus, price and quantity demanded of a good or service are negatively related
What is demand?
When it comes to the question ofhow much people are willing to buy of a good or service, price is clearly
a factor. However, there areimportant non-price determinant of
demand as well.
These include:
The price of substitute goods
The price of complementary goods
Consumer income
Tastes and preferences
The demand for pineapple depends on:
The price of pineapple
The price of cantaloupe
The price of bananas
Consumer income
Consumer tastes
As we move alongthe demand curve
for, all factorsare held constantexcept the price
of pineapple
The demand for pineapple
Quantity0
Price
D
P2
P1
q1q2
Why is the demand curve downward sloping?
Because of the substitution effect
(1)Price
(2)Anita's QD
(per month)
(3)Bo's QD
(per month)
(4) = (3) + (2)Total QD
(per month)$2.50 1 2 3
2.00 2 4 6
1.50 3 7 10
1.00 4 8 12
Here we derive the marketdemand curve by
summing up the individualdemand curves for pineapple
Market demand
Price ($)
Quantity0 3 6 10 12
1.00
1.50
2.00
2.50
Anita
BO
74
Price
0
A
B
H
D1
D2
P1
P2
q1 q2 Quantity
Demand could shift right due to:
Increase in the price of substitutes
Decrease in the price of complements
Increase in income
Change of tastes and preferences
Price
0
A
B
H
D0
D1
P1
P2
q1 q2 Quantity
Demand could shift left due to:
Decrease in the price of substitutes
Increase in the price of complements
Decrease in income
Change of tastes and preferences
The supply curve is theschedule indicating the quantities of a good or
service sellers are willingto offer for sale at
alternative market prices,ceteris paribus
Price/lb. Quantity-Supplied(lb’s)
Quantity-Demanded
(lb’s)$2.50 0 1,200
3.50 200 9004.50 400 750
5.50 550 550
6.50 670 425
7.50 780 325
The supply of salmon
Quantity (lbs)
Price/lb
0
$2.50
$6.50
$3.50
$4.50
$5.50
200 400 550 670
Supply
Quantity (lbs)
Price/lb
0
$2.50
$6.50
$3.50
$4.50
$5.50
200 400 550 670
Supply
750 900
Demand
Note thatsupply isequal to
demand at aprice of $5.50
Quantity
Price
0
S1
S2
D
B
A
P1
P2
q1 q2
S1 to S2 explained by:
•good weather
•increase in the number of sellers
•decrease in input prices (machinery, fertilizer, labor, etc.)