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The Market Forces of Supply and Demand. Supply and Demand are the two words that economists use most often. Supply and Demand are the forces that make market economies work! Modern microeconomics is about supply, demand, and market equilibrium. Market Type: A Competitive Market. - PowerPoint PPT Presentation
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Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
The Market Forces of Supply and Demand
Supply and Demand are the two words that economists use most often.
Supply and Demand are the forces that make market economies work!
Modern microeconomics is about supply, demand, and market equilibrium.
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Market Type: A Competitive Market
A Competitive Market is a market:
–with many buyers and sellers
–that is not controlled by any one person
–in which a narrow “range of prices” are established that buyers and sellers act upon
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Individual Demand ScheduleCathy’s Demand: Ice Cream Cones
Price PerCone
(P)
DailyQuantity
(Q)
$3.00 0$2.50 2$2.00 4$1.50 6
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Individual Demand CurveCathy’s Demand: Ice Cream Cones
P$ Per Cone
Q # Cones Per Day
$2.50
$2.00
$1.50
2 4 6
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Determinants of Demand
Product’s Own Price (Px)Consumer Income (Y)Prices of Related Goods (Py)Tastes (T)Expectations (Pe)Number of Consumers (POP)
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Ceteris Paribus . . .
...implies that all the relevant variables (e.g. determinants of demand) are held constant, except the one(s) being studied at the time.
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Change in Quantity Demanded vs. Change in Demand
Change in Quantity DemandedMovement along the demand curve. Caused by a change in the Price of the product.
Change in Demand
A shift in the demand curve, either to the left or right. Caused by changes in Non-Price Factors.
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
The Concept of Supply. . .
Quantity Supplied refers to the amount (quantity) of a good that sellers are willing and able to make available for sale at alternative prices for a given period.
P
Q
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Individual Supply ScheduleSak’s Store: Ice Cream Cones
Price PerCone
(P)
DailyQuantity
(Q)
$3.00 5$2.50 4$2.00 3$1.50 2
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
PPricePer Cone
Q # Cones Per Day
$2.50
$2.00
$1.50
2 3 4
Individual Supply CurveSak’s Store: Ice Cream Cones
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Market Supply Schedule Market supply is the sum of all individual
supplies at each possible price. Assume the ice cream market has two
firms as follows:
Price Per Cone Sak’s IceMart Market Supply $0.00 0 + 0 = 0 $0.50 0 + 0 = 0 $1.00 1 + 0 = 1 $1.50 2 + 2 = 4 $2.00 3 + 4 = 7
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
PPricePer Cone
Q # Cones Per Day
$2.00
$1.50
$1.00
1 4 7
Market Supply CurveAll Sellers
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Determinants of Supply
Product’s Own Price (Px)Input Prices (Pf)Technology (Tech)Expectations (Pe)
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Change in Quantity Supplied vs. Change in Supply
Change in Quantity SuppliedMovement along the supply curve. Caused by a change in the Price of the product.
Change in SupplyA shift in the supply curve, either to the left or right. Caused by changes inNon-Price Factors
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Supply and Demand Together
Equilibrium Price The price at which the supply and demand
curve intersect. Quantity Supplied and Quantity Demanded are equal.
Equilibrium Quantity The quantity at which the supply and
demand curve intersect.
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Comparative Statics: Analyzing Changes in Equilibrium
Determine if an event shifts supply curve, the demand curve, or both.
Determine if curve(s) shift to left or right.
Determine how the shift affects equilibrium price and quantity.
Example Event: Heat Wave Product: Ice Cream Cones
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Heat Wave Will Cause:“Increase in Demand”
Price
Quantity
P1
Q1
P2
Q2
Principles of Microeconomics & Principles of Macroeconomics: Ch. 4 First Canadian Edition
Changes in EquilibriumFour Principles
An Increase in Demand will cause:Pe Qe
A Decrease in Demand will cause:Pe Qe
An Increase in Supply will cause:Pe Qe
A Decrease in Supply will cause:Pe Qe
