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Reading 40: Supply and demand, fashion, advertisement, culture, etc.,…
Reading 40: Supply and demand
concepts
THE MARKET
types
virtual
physical
definition
perfectly competitive markets
buyers and sellers are price takers
number of firms is large
all seeking max profit
no barriers to entry or exit
firms’ products are identical
there is complete information
the forces of supply and demand
1 Understanding demand
1.1 The law of demand
demand definition
demand types
quantity demanded
demand
law of
demand concept
price go higher
quantity demand decline
factors
income effect
substitution effect
demande price curve
individual curve
market curve
exception context
luxury products
very life essential products
1.2 The price elasticity of demand
Price elasticity of demand (PED)
calculation
Percentage of change in the quantity demanded
divided by
Percentage of change in the price
results interpretation
potential results
When the value of PED is 1
Demand is neither elastic nor inelastic.
value of PED is more than 1
demand is price elastic
value of PED is less than 1
inelastic demand
1.3 Other determinants of demand
tastes and preferences
income
the availability
price of substitute
expectations future price
complementary
2 Understanding supply
supply concept definition
supply factor
factor incomes
profit
more profit =more supply
rent
wages
interest
producer ease of offering
other factors
the costs of production
alternative products profitability
goods in joint supply profitability
External events
expectations of future price
price supply relationship/curve
positive
supply /price exchange influence
supply
higher
price lower
price higher
supply higher
3 The equilibrium price
The equilibrium definition
the market equilibrium :
situation of market
at equilibrium point
quantities demanded and supplied will stay stable
neither unmet demand driving up prices nor surplus supply leading
to a reduction in prices
the market tend to equilibrium point always
supply is equally demand
3- EQUILIBRIUM
2-SURPLUS
1- SHORTAGE
equilibrium and perfectly competitive market
equilibrium factors
supply demand factors
the market tend to equilibrium point if the market competitive
the time needed to market adjustment
fashion, advertisement, culture, etc.
(Sancino, 2017.p,)