Mpp#008+buyers.&.sellers.(33)

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Mpp#008+buyers.&.sellers.(33)

  1. 1. Buyers and Sellers Determine Pricesnota bene: ( Buyers = DEMAND & Sellers = SUPPLY ) 1
  2. 2. Goals of Buyers and Sellers BUYERS SELLERS (wants an) Infinite PriceMake a transaction Make a transaction(wants a) Zero price 2
  3. 3. The Process of Price DeterminationGetting to: DEMAND = SUPPLY with Buyers and Sellers Negotiating within a “Marketplace” to agree on a transaction price. 3
  4. 4. COMPETITION IS THEULTIMATE REGULATOR [ “.C.I.I.P.” ] Competition has the ability to constrain both the buyers and the sellers in any given transaction. 4
  5. 5. Competition is the Regulator“If the SELLER charges too much for hiswares or if he refuses to pay as much as anyother PRODUCER to his workers he willfind himself without buyers in the one caseand without workers in the other.” 5
  6. 6. Buyers want the lowest possible price for the “asset” they want to buy but....Price DEMAND CURVE For Sale Quantity 6
  7. 7. they will have to compete against all the other like motivated buyers. Price DEMAND For Quantity Sale 7
  8. 8. Sellers will always want to charge the highest price possible but ......Price For SUPPLY CURVE Sale Quantity 8
  9. 9. they have to compete against allPrice other sellers. SUPPLY Quantity For Sale 9
  10. 10. Competition will determine Equilibrium PricePrice SUPPL Y$* DEMAND For Q* Quantity Sale Q. What does the SUPPLY curve look like in this transaction? 10
  11. 11. How is the price determined?• the Buyers will compete against each other and drive the price up• the Sellers will compete against each other and drive the price down• the Equilibrium Price will be determined by the impersonal forces of SUPPLY and DEMAND in the Marketplace 11
  12. 12. About the BUYERS just a bunch of “normal” people? 12
  13. 13. and Influencing the SELLERS 13
  14. 14. Reservation Prices• Sellers – Supply price – The lowest price a seller is willing and able to accept for a particular quantity of a particular product• Buyers – Demand price – The highest price a buyer is willing and able to pay for a particular quantity of a particular product 14
  15. 15. At the equilibrium price• Buyers who are able and willing to pay “the price” get the goods and services they desire (or can) [what hidden message]• Sellers who are able to produce at “the price” sell all they wish or can [what hidden message]• There are neither surpluses nor shortages• Not all prospective buyers or sellers are or will be satisfied 15
  16. 16. Relative Prices Income = $30,000 $40$10 $20 16
  17. 17. Relative Prices Have Not Changed Income = $30,000 Income = $60,000 $40 $80 $10 $20 $20 $40 17
  18. 18. SUPPLY (Curve) – a relationship Price Quantity Supplied $10 5 $9 4 $8 3 $7 2 $6 1 $5 0 $4 0 $3 0 $2 0 $1 0 18
  19. 19. The Law of Supply• Once all other factors have been considered the quantity to be supplied of a product varies directly with the price of the product.• If the price rises the quantity supplied will rise; if the price falls the quantity supplied will fall. 19
  20. 20. DEMAND (Curve) – a relationship Price Quantity Demanded $10 0 $9 0 $8 1 $7 2 $6 3 $5 4 $4 5 $3 6 $2 7 $1 8 20
  21. 21. The Law of Demand• Once all other factors have been considered the quantity to be demanded of a product varies inversely with the price of the product.• If the price rises the quantity demanded will fall; if the price falls the quantity demanded will rise. 21
  22. 22. Price Elasticity of Demand• Measure of the strength of buyers’ reactions to price changes• If buyers don’t react very strongly = inelastic• If buyers react strongly = elastic 22
  23. 23. Determinants of Price Elasticity of Demand• availability of substitutes• percentage of income• time (why would this be here?) 23
  24. 24. Price Elasticity of Supply• Indicator of the strength of seller’s response to price change• Determinants – time – use of easily transferable resources – divisibility of inputs. 24
  25. 25. Equilibrium Price andthe Quantity ExchangedPrice Quantity Supplied Quantity Demanded$10 5 0 $9 4 0 $8 3 1 $7 2 2 $6 1 3 $5 0 4 $4 0 5 $3 0 6 $2 0 7 $1 0 8 25
  26. 26. @ The Equilibrium Price• Quantity supplied equals quantity demanded• No shortages or surpluses• The market clears• Scarcity is not eliminated• The measure of relative scarcity 26
  27. 27. Relative Price: unit by which we measure relative scarcity (Units on the Scarcometer) $ $ 27
  28. 28. Order these products in terms ofrelative scarcity (most to least)yachtcandy bardinner for one at MacDonaldsa nice dinner for two in LAlaptop computerToyota mini truckticket to a professional baseball game 28
  29. 29. Main Points• The Law of Demand states a higher price will cause a decrease in the quantity demanded and a lower price will cause an increase in the quantity demanded.• A demand schedule is a relationship between prices and the quantities demanded. 29
  30. 30. Main Points• The Law of Supply states a higher price will cause an increase in the quantity supplied and a lower price will cause a decrease in the quantity supplied.• A supply schedule is a relationship between prices and the quantities supplied. 30
  31. 31. Main Points• the Price Elasticity of Demand measures the strength of the buyers’ response to price changes.• The determinants of Price Elasticity of Demand are availability of substitutes, percentage of income, and time. 31
  32. 32. Main Points• the Price Elasticity of Supply measures of the strength of seller’s response to a price change• The determinants of Price Elasticity of Supply are time, the deployment of easily transferable resources, and the divisibility of inputs. 32
  33. 33. Main Points• Buyers and sellers (the demanders and the suppliers) determine the equilibrium price and the quantity exchanged at the equilibrium price.• At the equilibrium price the number of items sellers are willing and able to offer for sale equals the number of items buyers are willing and able to purchase.• Relative scarcity is the relationship between supply and demand.• Price is the measure of relative scarcity. 33

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