the market forces of supply and demand ( (demand (factors affect demand…
the market forces of supply and demand
definition of market
is a group of buyers and sellers of a particular good or service
A competitive market
is one in which there are many buyers and many sellers so that each has a negligible impact on the market price.
is the amount of a good that buyers are willing and able to purchase
the law of demand
the quantity demanded of a good falls when the price of the good rises
individual demand and market demand
market demand=the sum of individual demand
factors affect demand
a good for which ceteris paribus, an increase in income leads to an increase in quantity demanded
E.g. overseas holiday
a good for which, ceteris paribus, an increase in income leads to a decrease in quantity demanded.
E.g. second hand furniture
prices of related goods
two goods where a decrease in the price of one good leads to a decrease in the demand for the other good
Complement goods: two goods where a decrease in the price of one good leads to an increase in the demand for the other good.
is butter good for you
number of buyers
Quantity demanded vs. demand
Causes a change in the quantity demanded of the product
Is illustrated by a movement along the demand curve
Cause a change in the demand of a product
Is illustrated by a shift in the demand curve
is the amount of a good that sellers are willing and able to sell
the law of supply
Ceteris paribus, the quantity supplied of a good rises when the price of the good rises
Firm supply versus market supply
market supply=sum of firm supply
factors affect supply
lower the cost
number of sellers
Quantity supplied vs. supply
Causes a change in the quantity supplied of the product
Is illustrated by a movement along the supply curve
Cause a change in the supply of a product
Is illustrated by a shift in the supply curve
Demand and supply jointly determine market prices and quantity.
When the quantity supplied equals the quantity demanded in a market, the market is said to be in equilibrium.
A shortage/surplus occurs when, at the market price, the quantity demanded is greater/smaller than the quantity supplied.
The analysis of a change in equilibrium is called comparative statics.
We proceed in three steps
Decide whether the event shifts the supply or demand curve (or perhaps both)
Decide in which direction the curve shifts
Use the supply and demand diagram to see how the shift changes the equilibrium