Chapter 4-B46 - The Market Forces of Supply and Demand PDF

CHAPTER 4: THE MARKET FORCES OF SUPPLY AND GROUP 6: DEMAND Adorable, Avegail Basiwa, Daisy Rose Bongalon, Monica Bianca Gomera, Melanie CONTENTS: MARKET AND COMPETITION DEMAND SUPPLY PUTTING DEMAND AND SUPPLY...

CHAPTER 4: THE MARKET FORCES OF SUPPLY AND GROUP 6: DEMAND Adorable, Avegail Basiwa, Daisy Rose Bongalon, Monica Bianca Gomera, Melanie CONTENTS: MARKET AND COMPETITION DEMAND SUPPLY PUTTING DEMAND AND SUPPLY TOGETHER WHAT HAPPEN WHEN THINGS CHANGE?  ICE BREAKER “TEXT TREASURE”  MARKET In economics, a market is a group of buyers and sellers with the potential to trade with each other. Unlike a physical location, markets exist wherever there are buyers and sellers interacting.  COMPETITORS IN MARKET Perfectly competitive - markets (or just competitive markets), each and seller takes the market price as a given. Imperfectly competitive markets - individual buyers or sellers can influence the price of the product. TYPES OF MARKETS 1. Monopoly- a market with a single seller who controls supply and sets prices. 2. Oligopoly- features a few sellers who may avoid aggressive competition to maintain high prices. 3. Monopolistic- includes many sellers offering similar but differentiated product.  DEMAND an economic concept that relates to a consumer’s desire to purchase goods and services and willingness to pay a specific price for them. QUANTITY DEMAND the amount of a good that buyers are willing and able to purchase. WHAT DETERMINES THE QUANTITY AN INDIVIDUAL DEMANDS? >Price- is the amount of money that buyer pays to a seller in exchange for a good or service. If the price increases the quantity demand fell, and if the price decreases the quantity demand increases. LAW OF DEMAND the claim that, other things equal, the quantity demanded of a good falls when the price of the >Income- If the income falls, the quantity demand decreases. Resulting to spend less on some or most of the goods. Normal Good- a good for which, other things equal, an increase in income leads to an increase in demand. Inferior Good- are the things we buy more of when we have less money. >PRICE OF RELATED GOODS: - when a fall in the price of one good reduces the demand for another good, the two goods are called-- SUBSTITUTE- two goods for which an increase in the price of one leads to an increase in the demand for the other. COMPLEMENT- two goods for which an increase in the price of one leads to a decrease in the demand for the other. >TASTE: The most obvious determinant of your demand is your tastes. >EXPECTATIONS: Your expectations about the future may affect your demand for a good or service today. DEMAND SCHEDULE AND DEMAND CURVE DEMAND CURVE MARKET DEMAND VERSUS INDIVIDUAL DEMAND SHIFTS IN THE DEMAND CURVE supply  quantity supplied The amount of a good that sellers are willing and able to sell.  WHAT DETERMINES THE QUANTITY AN INDIVIDUAL SUPPLIES? PRICE: Higher prices lead to larger quantities supplied. Lower prices result in smaller quantities; very low prices may stop production. This relationship between price and quantity supplied is called the, Law of Supply : Other things equal, when the price of a good rises, the quantity supplied of the good also rises. INPUT PRICES: The cost of materials (cream, sugar, etc.) affects supply. Higher input prices decrease supply; very high prices may lead to shutting down production. TECHNOLOGY : Advances (like mechanized machines) can lower production costs and increase supply. EXPECTATIONS: If sellers expect future price increases, they may reduce current supply to store products.  THE SUPPLY SCHEDULE AND THE SUPPLY CURVE: Supply Schedule: Supply Curve: A table that shows the A graph of the relationship relationship between between the price of a the price of a good good and the and the quantity quantity supplied. supplied.  Table 4-4. BEN’S SUPPLY SCHEDULE. The supply schedule shows the quantity supplied at each price.  Figure 4-5 BEN’S SUPPLY CURVE. This supply curve, which graphs the supply schedule in Table 4-4, shows how the quantity supplied of the good changes as its price varies.  MARKET SUPPLY VERSUS INDIVIDUAL SUPPLY Market Supply: the sum of the supplies of all sellers. the sum of the two individual supplies.  Table 4-5 INDIVIDUAL AND MARKET SUPPLY SCHEDULES. The quantity supplied in a market is the sum of the quantities supplied by all the sellers. Figure 4-6  Figure 4-6 MARKET SUPPLY AS THE SUM OF INDIVIDUAL SUPPLIES. The market supply curve is found by adding horizontally the individual supply curves. At a price of $2, Ben supplies 3 ice-cream cones, and Jerry supplies 4 ice-cream cones. The quantity supplied in the market at this price is 7 cones.  Figure 4-7 SHIFTS IN THE SUPPLY CURVE. Any change that raises the quantity that sellers wish to produce at a given price shifts the supply curve to the right. Any change that lowers the quantity that sellers wish to produce at a given price shifts the supply curve to the left.  SHIFTS IN THE SUPPLY CURVE Causes of Shifts: Changes in input prices (e.g., sugar prices) can shift the supply curve. A decrease in input prices increases supply (right shift); an increase decreases supply (left shift). Price Changes: A change in price does not shift the supply curve but moves along it.  Table 4-6. THE DETERMINANTS OFQUANTITY SUPPLIED. This table lists the variables that can influence the quantity supplied in a market. Notice the special role that price plays: A change in the price represents a movement along the supply curve, whereas a change in one of the other variables shifts the supply curve. PUTTING THE SUPPLY AND DEMAND TOGETHER Having analyzed supply and demand separately, we now combine them to see how they determine the quantity of a good sold in a market and its price.  EQUILIBRIUM Figure 4-8 shows the market supply curve and market demand curve together. Notice that there is one point at which the supply and demand curves intersect; this point is called the market’s equilibrium. The price at which these two curvescross is called the equilibrium price, and the quantity is called the equilibrium quantity  EQUILIBRIUM ON A GRAPH equilibrium a situation in which supply and demand have been brought into balance equilibrium price the price that balances supply and demand equilibrium quantity the quantity supplied and the quantity demanded when the price has adjusted to balance supply and demand  surplus a situation in which quantity supplied is greater than quantity demanded shortage a situation in which quantity demanded is greater than quantity supplied law of supply and demand Three Steps of Analyzing Changes in Equilibrium First, we decide whether the event shifts the supply curve, the demand curve, or in some cases both curves. Second, we decide whether the curve shifts to the right or to the left. Third, we use the supply-and-demand diagram to WHAT HAPPENS WHEN THINGS CHANGE? EXAMPLE of 1 A CHANGE IN DEMAND Changes: 2 A CHANGE IN SUPPLY A CHANGE IN BOTH 3 SUPPLY AND DEMAND  “A Change in Demand” Suppose that one summer, the weather is very hot. How does this event affect the market for the ice cream? 1. Hot weather increases the demand for ice cream by changing people's preferences, but it does not affect the supply curve, as the weather doesn't directly impact ice cream sellers. 2. The increased desire for ice cream due to hot weather shifts the demand curve to the right, meaning more ice cream is demanded at every price level. 3. The rise in demand causes the equilibrium price of ice cream to increase from $2.00 to $2.50 and the quantity sold to rise from 7 to 10 cones.  REMINDER: A shift in the supply curve is called a “change in supply,” and a shift in the demand curve is called a “change in demand.” A movement along a fixed supply curve is called a “change in the quantity supplied,” and a movement along a fixed demand curve is called a “change in the quantity demanded.”  “A CHANGE IN SUPPLY” Suppose that, during another summer, an earthquake destroys several ice-cream factories. How does this event affect the market for ice cream? 1. The earthquake reduces the number of ice cream sellers, shifting the supply curve but not the demand curve, as household demand remains unchanged. 2. The supply curve shifts left, meaning firms are willing to sell less ice cream at every price. 3. The leftward shift of the supply curve increases the price of ice cream from $2.00 to $2.50 and reduces the quantity sold from 7 to 4 cones.  “A CHANGE IN BOTH SUPPLY AND DEMAND” NOW SUPPOSE THAT THE HOT WEATHER AND THE EARTHQUAKE OCCUR AT THE SAME TIME. 1. Both the demand and supply curves shift due to external factors: hot weather increases the demand for ice cream, while an earthquake reduces the supply as it affects firms' ability to sell. 2. The demand curve shifts to the right (more demand), and the supply curve shifts to the left (less supply), as shown in Figure 4-12. 3. The outcome depends on the size of the shifts. If demand rises more than supply falls, the equilibrium quantity increases. If supply falls more than demand rises, the equilibrium quantity decreases. In both cases, the price of ice cream goes up, but the effect on the quantity sold is uncertain. “WHAT HAPPENS TO PRICE AND QUANTITY WHEN SUPPLY OR DEMAND SHIFTS”  Ice breaker! name the logo name the logo name the logo name the logo name the logo name the logo name the logo name the logo name the logo name the logo name the logo name the logo name the logo name the logo name the logo Thank you!