DEMAND, SUPPLY AND MARKET PRICE
● Competitive Market: Many buyers and seller, each of whom has no influence on market
price. (eg: coffee)
The Demand Curve
Law of Downward-Sloping Demand
● Other things equal, the higher is the price of a good, the lower is the quantity demanded.
● Price Quantity Demanded
4 3 Candy Bars
summation; market demand curve
● Market demand curve: sum of individual demand curves(at each possible price, sum the
quantities demanded by each individual)
1. A change in quantity demanded (as the price of the good changes) is a movement along the demand the demand curve
2. A change in demand (for a given price) is a shift in the demand curve.
3. Sources of shifts in demand curves
○ Price of related goods. (substitutes [instead of] or complements[together])
● Substitutes: tea and coffee
● Complements: coffee and cream
● “Other things” equal means: No change in
a. Price of related goods
● Will there be a change in demand for bullets if there is a fall in the price of guns?
1) Bullets and guns are complements (used “together”)
2) The demand for bullets will increase (at any given price, the quantity demanded of
bullets will increase)
Market vs. Individual Demand Curve
Movement Along vs. Shift
The Supply Curve
Law of Upward-Sloping Supply
● Other things equal, the higher is the price of a good, the higher is the quantity supplied.
● Source: firms seeking to maximize profits.
Market vs. Firm Supply Curve
● Market supply curve: Sum of firm supply curve (assumes there is a large number of
firms, each of which can exert no influence on price)
Movement Along vs. Shift ● A change in quantity supplied is a movement along the supply curve
● A change in supply (for a given price) is a shift in the supply curve.
● Sources of shifts include: