1、Unit 3Understanding Individual Markets:Demand and SupplynA market is a group of buyers and sellers of a particular good or service.nThe terms supply and demand refer to the behavior of people.as they interact with one another in markets.What Is a Market?DEMANDnQuantity demanded is the amount of a go
2、od that buyers are willing and able to purchase.nLaw of DemandnThe law of demand states that,other things equal,the quantity demanded of a good falls when the price of the good rises.DemandnBelow is a list of some factors which may be expected to influence consumers:The price of the goodThe prices o
3、f related goodsIncome Expected future prices Preferences,taste and fashionThe Demand Curve:The Relationship between Price and Quantity DemandednDemand Schedule nThe demand schedule is a table that shows the relationship between the price of the good and the quantity demanded.The Demand Curve:The Rel
4、ationship between Price and Quantity DemandednDemand Curve nThe demand curve is a graph of the relationship between the price of a good and the quantity demanded.Figure 1 Catherines Demand Schedule and Demand CurvePrice ofIce-Cream Cone02.502.001.501.000.50123456789 10 11Quantity ofIce-Cream Cones$3
5、.00121.A decrease in price.2.increases quantity of cones demanded.Market Demand versus Individual DemandnMarket demand refers to the sum of all individual demands for a particular good or service.nGraphically,individual demand curves are summed horizontally to obtain the market demand curve.The Mark
6、et Demand CurvePrice of Ice-Cream ConePrice of Ice-Cream ConePrice of Ice-Cream Cone2.002.002.004371.001.001.008513Quantity of Ice-Cream ConesQuantity of Ice-Cream ConesQuantity of Ice-Cream ConesCatherines DemandNicholass DemandMarket Demand+=When the price is$2.00,Catherine will demand 4 ice-cream
7、 cones.When the price is$2.00,Nicholas will demand 3 ice-cream cones.The market demand at$2.00 will be 7 ice-cream cones.When the price is$1.00,Catherine will demand 8 ice-cream cones.When the price is$1.00,Nicholas will demand 5 ice-cream cones.The market demand at$1.00,will be 13 ice-cream cones.T
8、he market demand curve is the horizontal sum of the individual demand curves!Shifts in the Demand CurvenChange in Quantity DemandednMovement along the demand curve.nCaused by a change in the price of the product.0DPrice of Ice-Cream ConesQuantity of Ice-Cream ConesA tax on sellers of ice-cream cones
9、 raises the price of ice-cream cones and results in a movement along the demand curve.AB81.00$2.004Shifts in the Demand CurvenChange in DemandnA shift in the demand curve,either to the left or right.nCaused by any change that alters the quantity demanded at every price.Price ofIce-CreamConeQuantity
10、ofIce-Cream ConesIncreasein demandDecreasein demandDemand curve,D3Demandcurve,D1Demandcurve,D20Shifts in the Demand CurvenConsumer incomenPrices of related goodsnTastesnExpectationsnNumber of buyersShifts in the Demand CurvenConsumer IncomenAs income increases the demand for a normal good will incre
11、ase.nAs income increases the demand for an inferior good will decrease.Shifts in the Demand CurvenPrices of Related GoodsnWhen a fall in the price of one good reduces the demand for another good,the two goods are called substitutes.nWhen a fall in the price of one good increases the demand for anoth
12、er good,the two goods are called complements.SUPPLYnQuantity supplied is the amount of a good that sellers are willing and able to sell.nLaw of SupplynThe law of supply states that,other things equal,the quantity supplied of a good rises when the price of the good rises.The Supply Curve:The Relation
13、ship between Price and Quantity SuppliednSupply SchedulenThe supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.The Supply Curve:The Relationship between Price and Quantity Supplied nSupply CurvenThe supply curve is the graph of the relatio
14、nship between the price of a good and the quantity supplied.Figure 5 Bens Supply Schedule and Supply CurvePrice ofIce-CreamCone02.502.001.501.0012345678910 11Quantity ofIce-Cream Cones$3.00120.501.Anincrease in price.2.increases quantity of cones supplied.Market Supply versus Individual SupplynMarke
15、t supply refers to the sum of all individual supplies for all sellers of a particular good or service.nGraphically,individual supply curves are summed horizontally to obtain the market supply curve.Shifts in the Supply CurvenChange in Quantity SuppliednMovement along the supply curve.nCaused by a ch
16、ange in anything that alters the quantity supplied at each price.1 5Price of Ice-Cream ConeQuantity of Ice-Cream Cones0S 1.00A$3.00A rise in the price of ice cream cones results in a movement along the supply curve.Shifts in the Supply CurvenChange in SupplynA shift in the supply curve,either to the
17、 left or right.nCaused by a change in a determinant other than price.Price ofIce-CreamConeQuantity ofIce-Cream Cones0Increasein supplyDecreasein supplySupply curve,S3curve,SupplyS1Supplycurve,S2Shifts in the Supply CurvenInput pricesnTechnologynExpectations nNumber of sellersMarket EquilibriumEquili
18、brium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded.Equilibrium PricenThe price that balances quantity supplied and quantity demanded.nOn a graph,it is the price at which the supply and demand curves intersect.Equilibrium QuantitynThe
19、 quantity supplied and the quantity demanded at the equilibrium price.nOn a graph it is the quantity at which the supply and demand curves intersect.Figure 8 The Equilibrium of Supply and DemandPrice ofIce-CreamCone0123456789101112Quantity of Ice-Cream Cones13EquilibriumquantityEquilibrium priceEqui
20、libriumSupplyDemand$2.00EquilibriumnSurplusnWhen price equilibrium price,then quantity supplied quantity demanded.nThere is excess supply or a surplus.nSuppliers will lower the price to increase sales,thereby moving toward equilibrium.Figure 9 Markets Not in EquilibriumPrice ofIce-CreamCone0SupplyDe
21、mand(a)Excess SupplyQuantitydemandedQuantitysuppliedSurplusQuantity ofIce-CreamCones4$2.50102.007EquilibriumnShortagenWhen price the quantity supplied.nThere is excess demand or a shortage.nSuppliers will raise the price due to too many buyers chasing too few goods,thereby moving toward equilibrium.
22、Figure 9 Markets Not in EquilibriumPrice ofIce-CreamCone0Quantity ofIce-CreamConesSupplyDemand(b)Excess DemandQuantitysuppliedQuantitydemanded1.5010$2.0074ShortageChanges in Equilibrium Price and QuantitynImpact of changes in demandnImpact of changes in supplynSimultaneous Changes in Demand and Supp
23、lyFigure 10 How an Increase in Demand Affects the EquilibriumPrice ofIce-CreamCone0Quantity of Ice-Cream ConesSupplyInitialequilibriumDD3.and a higherquantity sold.2.resultingin a higherprice.1.Hot weather increasesthe demand for ice cream.2.007New equilibrium$2.5010Figure 11 How a Decrease in Suppl
24、y Affects the EquilibriumPrice ofIce-CreamCone0Quantity of Ice-Cream ConesDemandNewequilibriumInitial equilibriumS1S22.resultingin a higherprice of icecream.1.An increase in theprice of sugar reducesthe supply of ice cream.3.and a lowerquantity sold.2.007$2.504What Happens to Price and Quantity When Supply or Demand Shifts?
