Ch 4 Market Forces of Supply and Demand bb

Ch 4 Market Forces of Supply and Demand bb - Copyright 2006...

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Unformatted text preview: Copyright 2006 Nelson, a division of Thomson Canada Ltd. Chapter 4 Market Forces of Supply & Demand Copyright 2006 Nelson, a division of Thomson Canada Ltd. Markets 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. Copyright 2006 Nelson, a division of Thomson Canada Ltd. Buyers (consumers) determine demand . Sellers (firms, producers, suppliers) determine supply . . Copyright 2006 Nelson, a division of Thomson Canada Ltd. Market demand refers to the sum of all individual demands for a particular good or service. Market supply refers to the sum of all individual supplies of a particular good or service. Copyright 2006 Nelson, a division of Thomson Canada Ltd. There are different types of market structures. A competitive market is one in which there are so many buyers and so many sellers that each has a negligible impact on the market price. A perfectly competitive market: all goods are exactly the same buyers & sellers so numerous that no one can affect the market price each is a price taker In this chapter, we assume markets are perfectly competitive. Copyright 2006 Nelson, a division of Thomson Canada Ltd. Demand Quantity demanded , Qd is the amount of a good or service that consumers are willing and able to buy at a given price, P. When the price of a good increases, you buy less of that good. We say price and Qd are negatively related. As P  , Qd  Copyright 2006 Nelson, a division of Thomson Canada Ltd. The Law of Demand Other things being equal ( ceteris paribus) , when the price of a good rises, the quantity demanded of that good falls. Copyright 2006 Nelson, a division of Thomson Canada Ltd. Other Determinants of Demand Income 1. When income increases and you buy more of a good, this good is a normal good (or if income falls and you buy less). 2. When income increases and you buy less of a good, this good is an inferior good (or if income falls and you buy more). Copyright 2006 Nelson, a division of Thomson Canada Ltd. Most goods are normal goods. Examples of inferior goods include Kraft Dinner (as your income increases, you dont have to eat KD anymore- you can afford steak) and bus rides (as income increases, you can take a cab or buy a car). Copyright 2006 Nelson, a division of Thomson Canada Ltd....
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This note was uploaded on 01/23/2011 for the course ENG 1D04 taught by Professor Done during the Spring '08 term at McMaster University.

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Ch 4 Market Forces of Supply and Demand bb - Copyright 2006...

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