Demand, Supply & Markets

What is a Market?Market - Any network that brings buyers and sellers into contact with one another so they

can exchange goods and services.

Are Markets growing?

Through markets our economy answers the 3 major questions.

SupplyPhysical and Psychological wants

Quantities of a good or service that sellers are willing and able to sell at minimum

various prices in a particular period of time.

As prices rise, suppliers are willing and able to supply more of something.

Sellers desire to maximize profits

Supply Curve Direct relationship b/t Quantity supplied and Price

Prices means to ration the good

Ceteris Paribus

Graphing Supply Curves / Upward Sloping

When demand goes up sellers increase the price

Price-quantity relationship (ex) as prices increase, more farmers see the chance for

greater profits and are willing to switch over to its melon production.

Ceteris Paribus, as the price of melons

fall, more melons will be demanded and

fewer supplied. Conversely, as the

price rises, more will be supplied and

fewer demanded.

Shifts in supply - Decrease

A decrease in supply occurs when the curve

shifts to the left.

Prices cause a movement along the supply curve

while shifts occur because of prices of

other goods, number of sellers, prices of relevant

inputs, technology, expectations

(production costs).

Shifts in supply - Increase

An increase in supply occurs when the curve

shifts to the right.

Prices cause a movement along the supply curve

while shifts occur because of prices of

other goods, number of sellers, prices of relevant

inputs, technology, expectations

(production costs).

At some price, the quantity supplied and

the quantity demanded will be equal =

Equilibrium or Market clearing price.

Supply = Demand at the price of 60

cents. At this price, 20 melons are

supplied and twenty melons are demanded.

Higher Price - At 70 cents per

melon, 15 melons are demanded and 25

supplied. There is a surplus of melons

What role will competition play in

this example?

Competition among melon suppliers pushes the price

down

Lower Price - At 40 cents per

melon, 10 melons are supplies and 30

demanded. There is a shortage of melons

What is the shortage of melons?

20 melons

Competitions role?Buyers competition forces equilibrium

Changes in the shift in Demand applies also to supply

Elasticity of SupplyElastic Supply

The responsiveness of producers to price changes in their products Factors:

1) time is one of the most important

2) Longer shelf life

Highly responsive to change in price - Producing however

much you want.

Inelastic SupplyUnresponsive to change in price - Being unable to produce more.

Inelastic Supply Elastic Supply