04_S&D Guided Notes

04_S&D Guided Notes - MarketsandCompetition A...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 1 Markets and Competition A market is a group of buyers and sellers of a particular product. Organized or loosely-connected A perfectly competitive market: all goods exactly the same buyers & sellers so numerous that no one can affect market price – each is a “ _______ ” (i.e. price is tied to competitor’s price) Perfect information (i.e. costless search) In this chapter, we assume markets are perfectly competitive. Easier to analyze Relevant to any market structure 0
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 2 Demand Demand comes from the maximizing behavior of buyers Compare costs of buying (____) with benefits (_______) The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase within some time period. e.g. the cups of coffee OSU students buy at Brenen’s at a particular price ____________ : the claim that the quantity demanded of a good falls when the price of the good rises, other things equal (Isolate the effect of P on Q D) 0
Background image of page 2
CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 3 Law of Demand Why? Substitution: Higher price drives consumer to look for cheaper way of obtaining satisfaction (e.g. coffee and caffeinated donuts) Key is that the relative price has changed, i.e. the price as compared to other prices Income effect: what your income can buy is lower when a price rises, this produces a tendency to buy less
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 4 The Demand Schedule Demand schedule : A table that shows the relationship between the price of a good (P) and the quantity demanded (Q d ) Example: Helen’s demand for lattes. Price of lattes Quantity of lattes demanded $0.00 16 1.00 14 2.00 12 3.00 10 4.00 8 5.00 6 6.00 4 Notice that Helen’s preferences obey the Law of Demand. 0
Background image of page 4
CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 5 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 0 5 10 15 Price of Lattes Quantity of Lattes Helen’s Demand Schedule & Curve Price of lattes Quantity of lattes demanded $0.00 16 1.00 14 2.00 12 3.00 10 4.00 8 5.00 6 6.00 4 0
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Market Demand versus Individual Demand The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. Suppose Helen and Ken are the only two buyers in the Latte market. ( Q d = quantity demanded) 4 6 8 10 12 14 16 Helen’s Q d 2 3 4 5 6 7 8 Ken’s Q d + + + + = = = = 6 9 12 15 + = 18 + = 21 + = 24 Market Q d $0.00 6.00 5.00 4.00 3.00 2.00 1.00 Price 0
Background image of page 6
CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 7 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 0 5 10 15 20 25 P Q The Market Demand Curve for Lattes P Q d (Market) $0.00 24 1.00 21 2.00 18 3.00 15 4.00 12 5.00 9 6.00 6 0
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 8 Demand Curve Shifters The demand curve shows how price affects quantity demanded, other things being equal .
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 59

04_S&D Guided Notes - MarketsandCompetition A...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online