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 s A market is a group of buyers and sellers of a particular product. s A competitive market is one with many buyers and sellers, each has a negligible effect on price. s In a perfectly competitive market: s For now, we assume markets are perfectly competitive.
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Demand s The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. s 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 s Demand schedule : a table that shows the relationship between the price of a good and the quantity demanded s Example: Helen’s demand for lattes. s 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 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 s The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. s 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 s The demand curve shows how price affects quantity demanded, other things being equal . s 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). s Changes in them shift the D curveE
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Demand Curve Shifters: # of Buyers s Increase in # of buyers increases quantity demanded at each price, shifts D curve to the right.
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$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
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This note was uploaded on 11/09/2011 for the course ECO 6789 taught by Professor Hu during the Spring '11 term at Campbell University .

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

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