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

10. 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

11. An Example – Beef Demand
Price/lb.
Quantity
lb./cap.
$5.00 50
$3.75 75
$4.75 55
$3.50 80
$4.50 60
$3.25 85
$4.25 65
$3.00 90
$4.00 70
$2.75 95

12. An Example – Beef Supply
Price
Quantity
3.00 60
4.25
72.5
3.25
62.5
4.50 75
3.50 65
4.75
77.5
3.75
67.5
5.00 80
4.00 70
5.25
82.5

15. 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

17. 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

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

20. 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

22. Efficient Markets Present price incorporates all known information
Who will sell you 100 shares Coca Cola when you want to buy?

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