Individual Markets: Demand & Supply 3 C H A P T E R.

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Presentation transcript:

Individual Markets: Demand & Supply 3 C H A P T E R

MARKETS DEFINED MARKETS POTENTIAL SELLERS POTENTIAL BUYERS

$ DEMAND DEFINED DEMAND SCHEDULE Various Amounts A Series of Possible Prices …a specified time period …other things being equal PQDQD

LAW OF DEMAND As Price Falls… …Quantity Demanded Rises As Price Rises… …Quantity Demanded Falls An inverse relationship exists between price and quantity demanded

Diminishing Marginal Utility Income Effect Substitution Effect LAW OF DEMAND Demand Curve Individual and Market Demand

GRAPHING DEMAND P Q o $ PQDQD $ Price of Corn Quantity of Corn CORN Plot the Points

P Q o $ PQDQD $ Price of Corn Quantity of Corn CORN Plot the Points GRAPHING DEMAND

P Q o $ PQDQD $ D Price of Corn Quantity of Corn CORN What if Demand Increases? GRAPHING DEMAND

P Q o $ PQDQD $ D Price of Corn Quantity of Corn CORN D’ Increase in Demand Increase in Quantity Demanded GRAPHING DEMAND

P Q o $ PQDQD $ D Price of Corn Quantity of Corn CORN What if Demand Decreases? GRAPHING DEMAND

P Q o $ PQDQD $ D Price of Corn Quantity of Corn CORN D’ Decrease in Demand Decrease in Quantity Demanded GRAPHING DEMAND

DETERMINANTS OF DEMAND Tastes Number of Buyers Income – Normal (Superior) & Inferior Goods Prices of Related Goods – Substitutes & Complements – Unrelated Goods Expectations

SUPPLY DEFINED SUPPLY SCHEDULE $ PQSQS CORN Various Amounts A Series of Possible Prices …a specified time period …other things being equal

LAW OF SUPPLY As Price Rises… …Quantity Supplied Rises As Price Falls… …Quantity Supplied Falls A direct relationship exists between price and quantity supplied

P Q o $ $ PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

S P Q o $ $ PQSQS Price of Corn Quantity of Corn CORN What if Supply Increases? GRAPHING SUPPLY

S P Q o $ Price of Corn Quantity of Corn $ PQSQS CORN S’ Increase in Supply Increase in Quantity Supplied GRAPHING SUPPLY

S P Q o $ $ PQSQS Price of Corn Quantity of Corn CORN What if Supply Decreases? GRAPHING SUPPLY

S P Q o $ $ PQSQS Price of Corn Quantity of Corn CORN S’ Decrease in Supply Decrease in Quantity Supplied GRAPHING SUPPLY

DETERMINANTS OF SUPPLY Resource Prices Technology Taxes & Subsidies Prices of Other Goods Price Expectations Number of Sellers

DETERMINANTS OF SUPPLY Resource Prices Technology Taxes & Subsidies Prices of Other Goods Price Expectations Number of Sellers Combining with Demand

MARKET DEMAND & SUPPLY $ $ B U Y E R S PQDQD BUSHELS OF CORN MARKET DEMAND 2,000 4,000 7,000 11,000 16, S E L E R S 12,000 10,000 7,000 4,000 1,000 PQSQS BUSHELS OF CORN MARKET SUPPLY EQUILIBRIUM Graphically… xx

7 S P Q o $ PQDQD $ ,000 4,000 7,000 11,000 16,000 $ ,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Market Clearing Equilibrium MARKET DEMAND & SUPPLY

7 S P Q o $ PQDQD $ ,000 4,000 7,000 11,000 16,000 $ ,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Surplus At a $4 price more is being supplied than demanded MARKET DEMAND & SUPPLY

11 7 S P Q o $ PQDQD $ ,000 4,000 7,000 11,000 16,000 $ ,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET At a $2 price more is being demanded than supplied Shortage MARKET DEMAND & SUPPLY

11 7 S P Q o $ PQDQD $ ,000 4,000 7,000 11,000 16,000 $ ,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Shortage MARKET DEMAND & SUPPLY Surplus

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