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Prices and Markets AG BM 102. Introduction Prices change all the time The reason is because of changes in supply and/or demand This happens in a market.

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Presentation on theme: "Prices and Markets AG BM 102. Introduction Prices change all the time The reason is because of changes in supply and/or demand This happens in a market."— Presentation transcript:

1 Prices and Markets AG BM 102

2 Introduction Prices change all the time The reason is because of changes in supply and/or demand This happens in a market A market is many things, but essentially it is where suppliers and demanders meet

3 Market – the context of transactions between buyers and sellers of the same good or service

4 A Market Where the prices are determined Where the terms of trade are negotiated May be defined as a place, a time, a group of buyers or sellers, the level of the marketing system

5 Equilibrium Occurs where supply and demand curves meet Defines a price and a quantity that clears market Sends message to those in the market about preferences

6 An Example – Beef Demand Price/lb.Quantity lb./cap. Price/lb.Quantity lb./cap. $5.0050$3.7575 $4.7555$3.5080 $4.5060$3.2585 $4.2565$3.0090 $4.0070$2.7595

7 An Example – Beef Supply PriceQuantityPriceQuantity 3.00604.2572.5 3.2562.54.5075 3.50654.7577.5 3.7567.55.0080 4.00705.2582.5

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9 Demand Supply Demand = Supply

10 Why is it stable? If P is too low, quantity demanded exceeds quantity supplied and price is bid up If P is too high, quantity supplied exceeds quantity demanded and price falls

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12 Why does this happen? Why does a small shift in supply cause the price to change by so much? Demand is so inelastic! The only way to absorb the additional milk is to torpedo the price

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14 What happens when a line moves? In this graph, the milk supply decreased Supply curve shifts New equilibrium at a higher price Sometimes the demand curve shifts Same idea – move a line, new equilibrium Increase in demand – higher price Decrease – lower price

15 What changed? If demand increases – the line moves It crosses supply at a new point An increase in demand causes an increase in QUANTITY SUPPLIED In general, one line moves & you move along the other line to the new equilibrium

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17 Efficient Markets Present price incorporates all known information Who will sell you 100 shares Coca Cola when you want to buy? Winner’s Curse

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19 Concluding Comments Market defines price and quantity Sends message to everyone about conditions Regulates decisions Becomes interesting when a line moves


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