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Lecture

# eco lec

Department
Economics
Course Code
ECO100Y1
Professor
James Pesando

Page:
of 4 26/09/2011
Demand’ Supply and Market Price
Competitive Market
Many buyers and sellers’ each of who has no influence on market price
Ex: Coffee
Law of Downward Sloping Demand
Other things equal, the higher is price of a good, the lower is the quantity
demanded.
Price Quantity Demanded
5 0
4 3 Candy Bars
3 6
2 9
Market Demand Curve: Sum of individual demand curves (at each possible price,
sun the quantities demanded by each individual)
A change in quantity demanded (as the price of the good changes) is a
movement along the demand curve.
A change in demand (for a given price) is a shift in the demand curve Sources
of shifts in demand curves
a. Price of related goods
i. Substitutes
ii. Complements
b. Income
c. Preferences
Complements : together
Will the demand of the coffee shift if there is a reduction in the price of tea
Tea and coffee are substitutes (used is instead of)
Result: a decrease in the demand for coffee
SUPPLY CURVE
Law of Upward-Sloping Supply
Other things equal, the higher is the price if a good, the higher is the
quantitity supplied.
Source: firms seeking to maximize profits
Market Supply Curve: Sum of Firm Supply
Curves (Ass…..
MOVEMENT ALONG A SUPPLY CURVE VERSUS A SHIFT IN THE SUPPLY
CURVE
A change in quantity supplied (as the price of the good changes) is a
movement along the supply curve.
A change in supply (for a given price) is a shift if the supply curve.
Sources: Costs of production
Prices of factors of production
Market Equilibrium
Price Quantity Demanded Quantity Supplied
5 2
6
4 3
5
3 4 4
2 6
3
1 9 0
Equilibrium Price
P=3 Q(demanding)= Q(supplied)=4
Any other
Diagram 3
EQUILIBRIUM IN THE COMPETITIVE MARKET
1.Equilibrium price occurs where quantity demanded is equal to quantity supplied
Shifts in …..
Ex: What happens to the price of a prior of textbook if the price of the new edition
increases sharply
New edition and prior edition are substitiues ( used instead of one another)
…..
Diagram 4
What happens to supply of prior edition?
Answer: No change 9 noreason that the quantity supplied at each price will change,
as students decide to keep or sell…)