SUPPLY AND DEMAND : HOW MARKETS WORK

MARKETS AND COMPETITION

• A market is a group of buyers and sellers of a particular good or service.
• The terms supply and demand refer to the behavior of people as they interact with one another in markets.
• Buyers determine demand
• Sellers determine supply

Competitive Markets

A competitive market is a market in which there are many buyers and sellers so that each has a negligible impact on the market price.

• Perfect Competition   

                1 .Products are the same

                2 .Numerous buyers and sellers so that each has no influence over price

                3 .Buyers and Sellers are price takers

• Monopoly

                1.One seller, and seller controls price

• Oligopoly

                1.Few sellers

                2. Not always aggressive competition

• Monopolistic Competition

                1. Many sellers

                2.Slightly differentiated products

                3.Each seller may set price for its own product

DEMAND

• Quantity demanded is the amount of a good that buyers are willing and able to purchase.
• The law of demand states that, other things equal, the quantity demanded of a good falls when the price of the good rises.

The Demand Curve: The Relationship between Price and Quantity Demanded

1. Demand Schedule

• The demand schedule is a table that shows the relationship between the price and the good and the quantity demanded

     2.  Demand curve

• The demand curve is a graph of the relationship between the price of a good and the quantity demanded.

Market Demand versus Individual Demand

• Market demand refers to the sum of all individual demands for a particular good or service.
• Graphically, individual demand curves are summed horizontally to obtain the market demand curve.

• Shifts in the Demand Curve

               1. Change in Quantity Demanded
               2. Movement along the demand curve.
               3. Caused by a change in the price of the product

• Change in demand

               1. A shift in the demand curve, either to the left or right.

            2.Caused by any change that alters the quantity demanded at every price.

               3.Consumer Income

               4.As income increases the demand for a normal good will increase.

               5.As income increases the demand for an inferior good will decrease. 

•  Prices of Related Goods

               1. When a fall in the price of one good reduces the demand for another good, 

                     the two goods are called substitutes.

               2.When a fall in the price of one good increases the demand for another good,

                     the two goods are called complements

SUPPLY

• Quantity supplied is the amount of a good that sellers are willing and able to sell.
• The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises.

The Supply Curve: The Relationship between Price and Quantity Supplied

      1. Supply Schedule

• The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied

      2. Supply Curve

• The supply curve is the graph of the relationship between the price of a good and the   quantity supplied.

Market Supply versus Individual Supply

• Market supply refers to the sum of all individual supplies for all sellers of a particular good or service.

• Graphically, individual supply curves are summed horizontally to obtain the market supply curve.

• Shifts in the Supply Curve

               1. Input prices
                2.Technology
                3.Expectations
                4. Number of sellers
                5.Change in Quantity Supplied
                6.Movement along the supply curve
                7.Caused by a change in anything that alters the quantity supplied at each price