LECTURE 2 WHY DEMAND (NOT SUPPLY OR MARKET) ANALYSIS? Demand Analysis

Definition of the market 1. the place where at a given time an exchange was carried out between the suppliers and recipients 2. an agreement between sellers and buyers in which the supply, through the sellers’ activities, and the demand, through the buyers’ activities, determine the price at which the transactions are concluded

Supply and demand definition Supply - quantity or value of goods and services offered for sale at a given price at a specified time Demand - quantity or value of goods and services purchased by the buyers at a given price at a specified time

The law of demand and supply The law of demand - an increase in the price of a specific commodity will cause, with constant non- price factors, a decrease in the demand for the commodity, whereas the decrease in price will increase the demand. The law of supply- the supply grows with the increase in price and vice versa The demand and supply relationship is the essence of the market mechanism

Why demand (not supply) analysis? Why when analysing the market we mainly focus on analysis of the demand? Because supply depends on how much the analysed goods or services are needed In the case when the demand is insufficient, we reduce the production in order to not be exposed to losses. In the case of growing demand we are usually able to increase the production

Problems and projects 1 Using the demand schedule below, plot the demand curve on the graph. Label the axes and indicate for each axes the units being used to measure price and quantity Price, $quantity demanded, 1000 bushels of soybeans 7,210 7,015 6,820 6,625 6,430 6,235

Problems and projects 1 Using the supply schedule below, plot the supply curve on the graph. Label the axes and indicate for each axes the units being used to measure price and quantity Price, $quantity supplied, 1000 bushels of soybeans 7,240 7,035 6,830 6,625 6,420 6,215

Answer the questions The equilibrium price of soybeans will be $ ……………………………………thousand bushels of soybeans will be exchanged at this price

Self –test 1. A market is any arrangement that brings the buyers and sellers of a particular good or service togetheryesno 2. Demand is the amount of a commodity or service which a buyer will purchase at a particular priceyesno 3. The law of demand states that as price increases and other things being equal, the quantity of the product demanded increasesyesno 4. If price falls, there will be an increase in demandyesno 5. The equilibrium price of a good is the price at which the demand and the supply of the good are equalyesno 6. The relationship between price and quantity in the demand schedule is a direct relationshipyesno 7. The relationship between price and quantity in the supply schedule is an indirect relationshipyesno 8. A market is any arrangement that brings the buyers and sellers of a particular good or service togetheryesno R.C. Bingham, p

Questions An example of the market where place of transaction can be easily/hardly specified Which side of the market: demand, supply is characteristic for the buyers/sellers? Supply/demand low says that if price grows then supply/demand grows too The main reason for excluding supply from our analyses is the fact that supply depends on demand