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Free Market 1-Demand 2- Supply 3- Free Market
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1-Demand What is meant by the QUANTITY DEMANDED of ``American Copper`` in 2006( ie product X) Qd refers to the quantity that consumers wish to purchase & have the ability to pay for, during a certain time period. Qd refers to an effective demand( will +purchasing power)
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What determines the Qd of ``X``( a certain product)? Qdx= f(Px // Ps., Pc.,Tastes, Income..) ……………. Demand Law(-) ……………………………… those are other factors that shift the demand curve rightwards if other factors change suitably & leftwards if they change unsuitably
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Demand Law: States that usually there is an inverse relation between the quantity demanded of the product & its own price, other factors being constant. HOW WOULD THE DEMAND CURVE SHIFT IF OTHER FACTORS CHANGE?
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Diagrams showing shifts: Diagram showing a rightward shift as other factors changed suitably Diagram showing a leftward shift as other factors changed unsuitably
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2- Supply What is meant by the QUANTITY SUPPLIED of ``American copper `` in 2006( Qs of the product ``X``)? Qs refers to the quantity that the firms wish to produce for sale during a certain time period.
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What determines the Qs of a certain product? ( X) Qsx=f(Px// Pinputs,Tech.,Taxes,……..) ……+……… ---------------------------- SUPPLY LAW other factors that SHIFT the S curve either rightwards or leftwards
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Supply law states that usually there is a positive relation between the quantity supplied of a product & its own price, other factors being constant. When will the Supply curve shift?
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Diagrams showing S curve shifts Suitable changes in other factors( rightward shift) Unsuitable changes in other factors( leftward shift)
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3- Mechanism of a free competitive market The following shows how a free market operates when the government does not directly intervene to set prices: Px Qd Qs Excess 20 10 12.6 excess supply 1.10 11 11 EQUILIBRIUM 1.00 11.8 9.4 excess demand
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The previous data show that the market price is 1.10 & the quantity is 11. The market is thus temporarily stabilized.
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Diagram showing how a free market operates
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Separate cases. Show the impact of each of the following cases on American Copper Market:1-A decrease in the price of American aluminium. A decrease in price of aluminium as a substitute to copper, will cause a fall in the demand for copper, thus a leftward shift in the demand curve as seen:
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Diagram for case 1 Price & quantity of copper will both decrease.
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-Case 2. If tastes favored american copper. The D curve shifts rightwards, price & quantity rise.
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Case 3.Costs of extracting copper fell. The rightward shift of the S curve will decrease the price & increase the quantity,as seen on the graph:
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Case 4. Government imposed high taxes on copper producers The leftward S curve shift will increase the price & decrease the quantity, as seen on the graph:
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Case 5 If government decreased the taxes imposed on American copper producers & subsidized their inputs & that was accompanied by an increase in the demand for American copper, how would the price & quantity be affected? The following diagrams show the 3 possible alternatives.
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Alternative 1 Demand forces are stronger than supply forces ( extent of shifting the demand curve is greater than that regarding the supply curve,thus P & Q increase
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Alternative 2 Supply forces are stronger than demand forces, thus P falls & Q increases.
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Alternative 3 Demand & supply forces are equal, thus the price remains constant & Q rises.
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