Chapter 4 -- Carlos Pitta

Chapter 4 -- Carlos Pitta - Chapter 4 The Market Forces of...

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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 1 Chapter 4 The Market Forces of Supply and Demand Instructor: Carlos Pitta
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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 2 In this chapter, look for the answers to these questions: What factors affect buyers’ demand for goods? What factors affect sellers’ supply of goods? How do supply and demand determine the price of a good and the quantity sold? How do changes in the factors that affect demand or supply affect the market price and quantity of a good? How do markets allocate resources?
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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 3 Markets and Competition A market is a group of buyers and sellers of a particular product. A competitive market is one with many buyers and sellers, each has a negligible effect on price. A perfectly competitive market: all goods exactly the same buyers & sellers so numerous that no one can affect market price – each is a “ price taker In this chapter, we assume markets are perfectly competitive. 0
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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 4 Demand Demand comes from the behavior of buyers. The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. Law of demand : the claim that the quantity demanded of a good falls when the price of the good rises, other things equal 0
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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 5 The Demand Schedule Demand schedule : A table that shows the relationship between the price of a good and the quantity demanded. 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
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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 6 $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
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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
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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 8 $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
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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 9 Demand Curve Shifters The demand curve shows how price affects quantity demanded, other things being equal . These “other things” are non-price determinants of demand ( i.e., things that determine buyers’ demand for a good, other than the good’s price).
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This note was uploaded on 01/10/2011 for the course AEB 2514 taught by Professor Evandrummond during the Spring '09 term at University of Florida.

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Chapter 4 -- Carlos Pitta - Chapter 4 The Market Forces of...

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