CHAPTER 3

CHAPTER 3 - CHAPTER 3: Supply and Demand Market...

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CHAPTER 3: Supply and Demand Market Participants: There are four participants in a market: consumers, business firms, government and the international sector. There are two types of markets: the factors of production markets and the product markets. A market includes buyers and sellers and it exists whenever any exchange takes place. The buyers are on the demand side of the market, and the sellers are on the supply side of the market. DEMAND : Let us focus first on a single consumer or a buyer. Individual Demand : Tom is willing and able to pay for a tutor in web-design. Tom is willing to buy 1 hour of tutoring per semester if he must pay $50 an hour. If the price drops to $45/hr, Tom would be able and willing to buy 2 hours per semester. Thus, Tom would purchase more tutoring services if the price per hour drops. Demand is an expression of consumer buying intention, of willingness to buy not a statement of actual purchases. The demand curve is a summary of buying intentions. Common feature of demand is that it has a downward slope( Q D / P < 0)
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↓ P Current ↑Q D ↑ P Current ↓Q D This inverse relationship between the current price and quantity is called the law of demand. Graphically, this is a movement along the demand curve. In the graph above, if the price drops from say $50 to $30 the quantity demanded increases from 1 to 7 tutoring hours. Compaq used this law to increase computer sales in 2001. In the holiday season people snapped a Compaq Presario computer priced at $1099 for $699. Other Determinants of Market Demand : The simple demand schedule or curve has only one determinant which is the current price . Other determinants of the standard demand include: Tastes (desire) Income (purchasing power) Price of related goods Expectations of future income, price and taste Number of buyers in the market. Related goods: Include substitute goods (consumed instead of, say, tutoring in web design), complementary goods (consumed with tutoring in web design). If the price of a substitute (e.g.,: Math tutoring and Scuba diving) for web- design tutoring falls, the entire demand for web-design falls (or shifts down). This is because other goods or services have become cheaper and they can be substituted for web design tutoring. Then the entire demand for web design tutoring shifts down.
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This note was uploaded on 01/12/2012 for the course ECON 201 taught by Professor Joyce during the Fall '07 term at Drexel.

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CHAPTER 3 - CHAPTER 3: Supply and Demand Market...

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