Chapter 4: The Market Forces of Supply and Demand
A market is a group of buyers and sellers of a particular product.
A competitive market is one with many buyers and sellers; each has a negligible effect on price.
In a perfectly competitive market:
All goods exactly the same
Buyers & sellers so numerous that no one can affect market price – each is a “price
In this chapter, we assume markets are perfectly competitive. (To simply our analysis)
The quantity demanded of any good is the amount of the good that buyers are willing and able
to purchase. Qd= F ( # of buyers, price, price of other goods income and expectations)
Law of demand: the claim that the quantity demanded of a good falls when the price of the
good rises, other things equal
The Demand Schedule
a table that shows the relationship between the price of a good and the quantity demanded
Helen’s demand for lattes.
Notice that Helen’s preferences obey the
Law of Demand.
of lattes of lattes demanded
$0.00 16 1.00 14
Market Demand versus Individual Demand
The quantity demanded in the market is the sum of the quantities demanded by all buyers at
Suppose Helen and Ken are the only two buyers in the Latte market.(Q = quantity
Demand Curve Shifters
The demand curve shows how price affects quantity demanded, other things being equal.
These “other things” are non-price determinants of demand (i.e., things that determine buyers’
demand for a good, other than the good’s price). Changes in them shift the D curve…
Demand curve shifters:
Increase in # of buyers
increases quantity demanded at each price, shifts D curve to the right.
Demand Curve Shifters: Income
Demand for a normal good is positively related to inco