The Market Forces of Supply and Demand Chapter 4 The Market Forces of Supply and Demand

What is a Market? A market is where people trade and goods and services are exchanged. 2

*Bold words* are new key terms that you should understand! Markets are not organized However, buyers and sellers create a market For example, if buyers were famished they would buy burgers to delight their stomach, and the burger sellers sell their burgers so their business is successful. *Bold words* are new key terms that you should understand!

A Certain type of market Competitive market Where buyers and seller, each of whom has little or absolutely no influence on the market price. Are there many Competitive markets in the U.S?

Perfectly competitive vs Not perfectly competitive markets A perfectly competitive market is when buyers and sellers buy and sell at the certain price ( People must accept the price) When there is only one seller and he/she sets the price is called a monopoly (Not perfectly competitive).

We are going to start off by explaining the characteristics of buyers What is quantity demanded? What is the law of demand? What is a demand schedule?

Demand What is demand? The desire of purchasers, consumers, clients, employees, etc...

What is the demand curve? A demand curve is a graph that shows the relationship between the price and a certain material. Why use demand curves? To assume behaviors in competitive markets and to find the equilibrium price.

Understand the demand curve New key terms Quantity demanded(QD) Law of Demand Demand schedule 1. The willingness to buy an amount of good. 2. When the QD of a good goes down the price goes up 3. A table that shows the relationship between the price of a good and the QD

the demand schedule shows the “quantity demanded” at each price. What you just saw was a demand schedule and demand curve. Notice that the graph is the relation of price and quantity demanded. The demand schedule shows the “quantity demanded” at each price. Remember! the demand schedule shows the “quantity demanded” at each price.

demand curve The demand curve usually slopes downwards from left to right Each price of the sum of the two people’s demands is the market demand. Demand curves usually shows an individual’s demand for a product.

Shifts in the demand curve Income Prices of Related Goods Tastes Expectations Number of buyers

Shifts INCOME If you just got fired and penniless, what would your demand for polas be? When your income falls and the demand for good falls as well, it is called a normal good On the other hand if the demand for a good rises but your income goes down it’s an inferior good.

Examples An example of a normal good is video games. If your income falls you will buy less video games. An example of inferior goods are bus tickets. Instead of riding the taxi, if your income falls you would ride the bus.

Prices of related goods Nike has a 30% sale until next week. If Nike was cheaper than Adidas, you would buy more Nike products. In this case Nike and Adidas are substitutes. If you decide to buy basketball shorts you sure want to buy a jersey that fits with it. In this case the jersey and shorts are complements.

Tastes Nothing tastes better than a Double whopper. If something tastes marvelous wouldn’t the buyer buy more of it? DUHHH

Expectations Depending on your expectations beyond ahead of time, may have an affect on your demand of a good. Lets say you think ipods will cost 140$ less in 2 years. This will make you not buy an ipod.

Number of Buyers Market demand depends on factors that determine the demand of the buyers’ income, tastes, expectation. If Becky wanted to shop with her friends, the quantity demanded in the market would increase at all prices.

How to draw the demand curve with shifts http://www.youtube.com/watch?v= 5ryVqsvbwoE&feature=related

!!!!!!! Demand refers to the overall demand for a good or service and "shifts" only when there is a change in income, taste. However, quantity demanded refers to a specific quantity of a good or service consumers are willing to purchase at a given price.

Quick review 1.What is a monopoly? 2.What is a demand schedule? 3.What 5 things shifts the demand curve?

Supply If we learned about demand what is the supply? the act of supplying, furnishing, providing, satisfying. In short, the behavior of sellers.

What is the supply curve? The relationship between price and quantity supplied. Why use the Supply Curve? To assume behaviors in competitive markets and to find the equilibrium price.

Understand the Supply Curve Quantity Supplied The amount of something that a seller is willing to sell Law of Supply When the quantity supplied rises, the price rises Supply Schedule A table that shows the relationship price vs quantity supplied Supply Curve A graph that shows the relationship price vs. quantity supplied

the supply schedule shows the “quantity supplied” at each price. What you just saw was a supply schedule and supply curve. Notice that the graph is the relation of price and quantity supplied. The supply schedule shows the “supply demanded” at each price. Hold On! the supply schedule shows the “quantity supplied” at each price.

Supply Curve The Supply curve usually slopes Upwards from left to right The supply curve is to show the quantity supplied on the x- axis (independent variable) , price on the y-axis (dependent variable).

Shifts in supply curve Input prices Technology Expectations Number of Sellers

Input prices If you were a pizza seller and cheese costs more than before. Then your basically in trouble! Because cheese is more expensive you would choose not to sell as much as before! Sigh...

Technology If machines can create faster and pizza. Why waste money and time on labor? If technology improves so will it raise the supply of pizza.

Expectations If you think that Pizza will rise $2 per pan after 2 weeks, you would definitely store some pizzas right now and sell them later with more cash!

Number of Sellers If you thought you were too cool for the job and decided to quit. The supply in the market would fail because of your act.

What is created when the supply and demand are together? EQUILIBIRUM When the market price is at which quantity supplied and the quantity demanded are the same

A few more vocabs! Equilibrium price At a market price the supply of a good equals the quantity demanded Equilibrium quantity The quantity supplied or demanded at the equilibrium price Surplus Shortage Law of supply and demand As demand increases the price goes up which affects suppliers who increase the supply bringing the price back at normal.

Surplus Su When does a surplus occur? When the quantity supplied is greater than the quantity demanded. In this case the suppliers are unhappy

Shortage The opposite of surplus A shortage occurs when the quantity demanded is greater than the quantity supplied. In this case the demanders are not happy.

Wait! When the demand or the supply curve shifts what happens to the equilibrium!?!?!? A new equilibrium is formed! Point A is the initial E point and Point B is the new E point.

Explanation of changes in Supply and Demand http://www.youtube.com/watch?v=Z44kKMJm9NY&featur e=related

Quick Review 4. When does a shortage occur? 5. What are normal goods? give examples. 6. Why do economists use the demand curve.

3. Income, Prices of Related Goods, Tastes, Expectations Answers For Review 1. Monopolies are thus characterized by a lack of economic competition for the good or service.(a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it) 2. A demand schedule is a table that shows the relationship between the price of a good and the quantity demanded 3. Income, Prices of Related Goods, Tastes, Expectations and Number of buyers..

Answers for Review 4.A situation in which quantity supplied is greater than quantity demanded 5.normal goods is a good for which, other things equal, an increase in income leads to an increase in demand. example) ice-cream:) 6. To analyze how markets work, to show an individual’s demand for a product.