Supply and Demand - Topic 4 Supply and Demand In the study...

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Topic 4 Supply and Demand
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In the study of supply and demand, we will 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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Markets and Competition square4 A market is a group of buyers and sellers of a particular product. square4 A competitive market is one with many buyers and sellers, each has a negligible effect on price. square4 In a perfectly competitive market: square4 For now, we assume markets are perfectly competitive.
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Demand square4 The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. square4 Law of demand : the claim that the quantity demanded of a good falls when the price of the good rises, other things equal
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The Demand Schedule square4 Demand schedule : a table that shows the relationship between the price of a good and the quantity demanded square4 Example: Helen’s demand for lattes. square4 Notice that Helen’s preferences obey the law of demand. 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
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$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
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Market Demand versus Individual Demand square4 The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. square4 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
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$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
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Demand Curve Shifters square4 The demand curve shows how price affects quantity demanded, other things being equal . square4 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). square4 Changes in them shift the D curveelipsis
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Demand Curve Shifters: # of Buyers square4 Increase in # of buyers increases quantity demanded at each price, shifts D curve to the right.
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$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 0 5 10 15 20 25 30 P Q Suppose the number of buyers increases. Then, at each P , Q d will increase (by 5 in this example). Suppose the number of buyers increases. Then, at each P , Q d will increase (by 5 in this example). Demand Curve Shifters: # of Buyers
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Demand Curve Shifters: Income square4 Demand for a normal good is positively related to income.
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