Ch4 Supply & Demand Lec.
Supply and demand are the forces that make market economies work.
Supply and demand determine the quantity of each good produced and the price at which it is
• how any event or policy affect the economy? think ﬁrst about how it affect supply and
The terms supply and demand refer to the behavior of people as they interact with one another in
Markets and Competition
A market is a group of buyers and sellers of a particular good or service.The buyers as a group
determine the demand for the product, and the sellers as a group determine the supply of the
• take many forms: highly organized-less organized markets.
competition -> price and quantity are determined by all buyers and sellers as they interact in the
Economists use the term competitive market to describe a market in which there are so many
buyers and so many sellers that each has a negligible impact on the market price.
model: perfectly competitive market
• price takers: in such market buyers and sellers must accept the price the market determines.
At the market price, buyers can buy all they want, and sellers can sell all they want.
not all goods and services are sold in perfectly competitive markets.
• monopoly: one seller
most markets in between extreme perfectly competitive and another extreme monopoly.
1. What is a market?
A market is a group of buyers and sellers of a particular good or service.
2. What are the characteristics of a perfectly competitive market?
a. buyers and sellers "price takers"-must accept the price the market determined. --
Demand-from a buyer's perspective
Law of demand: other things being equal, the quantity demanded of a good ↓ when its price ↑
The quantity demanded of any good is the amount of the good that buyers are willing and able to
However, if something is too important to you, the change of price does not change your demand.
or something is not always on your demand-you buy it only when you need the service-like a
--- demand schedule: a table that shows the relationship between the price of a good and the
quantity demanded, holding constant everything else (must assume everything else stays the
same!) that inﬂuences how much of the good consumers want to buy.
demand curve: The line relating price and quantity demanded.
↑ an individual demand for a product
→ market demand: the sum of all the individual demands for a particular good or service.
• in a market with only two buyers, the market dema