1. Buffland Economics Chapter 3 Individual Markets: Demand and Supply

2. Buffland Economics Markets Communication among buyers and sellers for the purpose of trading

3. Buffland Economics Demand  Definition – various amount buyers are willing and able to buy at various prices  Law of Demand – Price increases, Qd decreases Diminishing marginal utility – as you consume additional units of the same item you enjoy them less  Demand Curve  Market Demand – sum of the individual demand curves

4. Buffland Economics Determinants of Demand Tastes and Preferences –Fads and Fashions –Advertising Number and composition of buyers –Population Prices of related goods –Substitutes – Pa rises Qda falls, Demand for b rises –Complements - Pa rises Qda falls, Demand for b falls Expectations Income –Normal – income rises, demand rises –Inferior - income rises, demand falls

5. Buffland Economics Demand vs Quantity Demanded Demand is the whole curve Quantity demanded is one price and point on the curve

6. Buffland Economics Supply  Definition – various amount sellers are willing and able to sell at various prices  Law of Supply – Price rises, Qs rises  Supply Curve  Market Supply – sum of the individual supply curves

7. Buffland Economics Determinants of Supply Shift the Supply Curve Resource prices Productivity –Technology and Education Taxes and subsidies Prices of related goods – –If the price of a substitute good rises you will produce more of that and less of the original good »Diamond Brands – produces Toothpicks and Matches »Green Giant – Corn, peas and green beans –Jointly produced goods – Price of Beef rises, the Qs of Beef rise, the supply of leather rises »Beef and leather Expectations Number of Sellers

8. Buffland Economics Supply vs Quantity Supplied Supply is the whole curve Quantity supplied is one price and point on the curve

9. Buffland Economics Market equilibrium: Qs = Qd Where the market clears Transactions costs – costs of –Information »Search –Convenience – hours, service, location and payment methods –Time

10. Buffland Economics Non equilibrium situations if left alone they will eliminate themselves –Surplus: Qs>Qd »Price floor –Shortage: Qd> Qs »Price ceiling

11. Buffland Economics Changes in Demand and Supply