Individual Markets: Demand and Supply Chapter 3. Demand and Supply Market Any institution or system that brings together buyers and sellers of a particular.

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Presentation transcript:

Individual Markets: Demand and Supply Chapter 3

Demand and Supply Market Any institution or system that brings together buyers and sellers of a particular product.

Demand and Supply Demand A schedule, which shows the various amounts of a product, which consumers are willing and able to purchase, at each possible price, during a specified time period.

Law of demand Ceteris Paribus, there is an inverse relationship between price and quantity demanded.

Ceteris Paribus Ceteris Paribus, means Holding everything else constant, so that we can ignore it.

Law of demand So if everything else in the universe is ignored: When prices rise, quantity demanded falls. When prices fall, quantity demanded rises.

Data for Demand Curve Price of LobsterQuantity Demanded

Demand Curve A B C D E

Demand vs. Quantity Demanded Demand –Shows what consumers are willing and able to purchase at a variety of prices. Quantity Demanded –Shows the amount consumers purchase at one specific price.

Demand vs. Quantity Demanded In a market, there is a range of prices. For each price, there is a unique and corresponding quantity demanded. Therefore: demand is made up of a whole series of quantities demanded.

Determinants of Demand Price Income Preferences & tastes Substitute products Complimentary products Number of buyers Expectations

Determinants of Demand Price Law of Demand tells us the relation between prices and quantities demanded.

Determinants of Demand Income The income of consumers shapes the demand for products.

Income Type of Product Examples NORMAL RisesMost clothes Demand Rises INFERIORRisesFallsHamburger Helper SUPERIOR Rises Furs, jewelry

Determinants of Demand Preferences & tastes We are talking about consumer preferences and tastes. –For example: –Downhill skiing, cross country skiing, water skiing

Determinants of Demand Substitute products These are products that are substituted for each other. –Examples include; Pepsi and coca-cola, Butter and margarine

Determinants of Demand Substitute products If the price of a product rises –The QUANTITY DEMANDED for that product will fall –And the DEMAND for the substitute will rise

Determinants of Demand Substitute products If the price of a product falls –The QUANTITY DEMANDED for that product will rise –And the DEMAND for the substitute will fall

Determinants of Demand Complimentary products Products that are usually consumed together –Examples Baseball bats, baseballs, and baseball gloves

Determinants of Demand Complimentary products If the price of a product rises –The QUANTITY DEMANDED for that product will fall –And the DEMAND for the compliment will fall

Determinants of Demand Complimentary products If the price of a product falls –The QUANTITY DEMANDED for that product will rise –And the DEMAND for the complimentary product will rise

Determinants of Demand Number of buyers Increase the number of buyers, and demand rises. Decrease the number of buyers, and demand falls.

Determinants of Demand Expectations People’s expectations about the future can shape demand in the present. (Economists are having difficulty proving exactly how).