Markets

A market is where buyers and sellers meet to exchange products These buyers and sellers negotiate a price that each is happy with, and then exchange the good

DEMAND The buyers of products make up the DEMAND for the good SUPPLY The sellers of products make up the SUPPLY of the good

MARKET PRICE The MARKET PRICE for a good is the price where the Number of Buyers = Number of Sellers Demand Supply Market or Equilibrium Price number of buyers = number of sellers Market or Equilibrium Quantity

Demand Supply Market or Equilibrium Price number of buyers = number of sellers Market or Equilibrium Quantity BUYERS Demand If all the BUYERS change their minds about buying the product, the Demand curve will move SELLERS Supply If all the SELLERS change their minds about buying the product, the Supply curve will move A market can react to changes in either the buyers or the sellers cause one of the curves to move These changes can cause one of the curves to move

When an entire curve moves, it is known as aSHIFT of the curve Shift of a curve Equilibrium Price Equilibrium Quantity to change A Shift of a curve will cause the Equilibrium Price and Equilibrium Quantity for the Market to change New Demand Curve New Market or Equilibrium Price New Market or Equilibrium Quantity Demand Supply Original Market or Equilibrium Price Original Market or Equilibrium Quantity This is a shift of the Demand curve

Either the Demand curve can shift or the Supply curve can shift The things that can shift a curve are called DETERMINANTS We are going to focus on the Demand Curve first and how it impacts the Equilibrium Price and Quantity for a good

Buyers of products make up the for the good Need a definition? Demand for a good consists of all the buyers who are willing and able to purchase the good at various prices

Here’s an example of Demand…. Let’s look at the Demand for Bosco Sticks in a classroom of 32 students At a price of $0 (no price), there are 30 students willing to buy Bosco Sticks The other two students choose not to eat Bosco Sticks, even if they do not have to pay for them (these 2 students are not part of the Demand for Bosco Sticks) Price Quantity Demanded $030

At different prices, there are different numbers of buyers for the Bosco Sticks Price Quantity Demanded $ A chart with price and quantity data is called a Demand Schedule As the price of the Bosco Sticks increases, fewer and fewer buyers want to purchase them

Price and Quantity Demanded are INVERSELY related If price rises, the number of buyers decreases If price falls, the number of buyers increases D Price Quantity If you put the Demand Schedule information on a graph, it would look like this: Demand DOWNWARD As you can see, the Demand curve slopes DOWNWARD This relationship is called the

Sometimes, things cause every person to change their willingness or ability to buy a good This means that we have new data for our demand curve This will cause us to draw a NEW demand curve to show the changes in willingness and ability

Let’s look at the Bosco example again… What if the surgeon general found that eating Bosco Sticks prevented cancer??? Old Demand Schedule Price Quantity Demanded $ Price $ New Demand Schedule We are assuming that everyone will want more Bosco Sticks…now they’re good for you!!!

Since the quantity demanded has changed at every price, we say that there has been a A Change in Demand causes the demand curve to shift or move D This is shown by drawing a new curve and labeling it as D plus a number This graph shows an increase in Demand D1

D Increase in Demand New demand curve is to the right of the original New demand curve is to the right of the original It moves towards the bigger numbers in the number line It moves towards the bigger numbers in the number line D D1 Decrease in Demand New demand curve is to the left of the original New demand curve is to the left of the original It moves towards the smaller numbers in the number line It moves towards the smaller numbers in the number line

What causes a Demand curve to shift?? There are 4 categories of things that will cause a Demand curve to shift. These categories are called Determinants… It’s easy to remember the determinants if you use this mnemonic device

These are goods that are used together, like… Peanut Butter and Jelly Oreos and Milk If the price of one good changes, it impacts the Demand of the other good If the Price of peanut butter increases, the quantity demanded of the peanut butter decreases This causes a decrease in the Demand for jelly (if people buy less peanut butter, they will need less jelly) The reverse is true also…

Goods that can be used in place of each other like Coke and Pepsi If the price of Pepsi increases, the quantity demanded of Pepsi decreases This causes an increase in the Demand for Coke

If the income of the consumers changes, it changes their ability to buy goods An increase in consumer income results in an increase in Demand for goods like cars or televisions A decrease in consumer income results in a decrease in Demand for goods Things like changes in income taxes or inflation rates will impact consumer income

Any of these items will cause a good to change in popularity, which will result in a change in Demand If a good is more popular, the Demand for it will increase. If it is less popular, Demand will decrease New information such as impact on health New information such as impact on health Trends are things like fads (Rubik’s Cubes) Trends are things like fads (Rubik’s Cubes) Number of Consumers: more consumers = more demand and vice versa

Add info about how D slopes downward

How can you tell if there is a change in Demand or a change in Quantity Demanded? Use the flow chart to help you

Is the price change for the good being measured on the graph? YES! This is a change in Quantity Demanded You should move along the curve Is there a price change? YES! NO! It’s a change in Demand You should shift the curve appropriately The determinant is one of the following: Attitudes, Trends, Number of Consumers Income of Consumers NO! It’s a change in Demand You should shift the curve appropriately The determinant is either Complementary Goods or Substitute Goods

Price Quantity Demanded $ When the price of the Bosco Sticks changed, the number of buyers changed. Economists call this a… If we put this data on a graph, it looks like this….

Price is always located on this axis Quantity Is always located on this axis The line is called the Demand Curve and always slopes Downward

If the price of the good changes, it causes a change in quantity demanded…. On the graph, this is a movement along the curve from one point to another D P Q P1 QD1 P2 QD2 If the price falls from P1 to P2 The quantity demanded will increase from QD1 to QD2