Individual  Markets: Demand & Supply
MARKETS DEFINED MARKETS POTENTIAL SELLERS POTENTIAL BUYERS
DEMAND DEFINED $5 4 3 2 1 10 20 35 55 80 A schedule or a curve that shows the various amounts of a product that consumers ...
LAW OF DEMAND <ul><li>As Price Falls… </li></ul><ul><li>… Quantity Demanded Rises </li></ul><ul><li>As Price Rises… </li><...
<ul><li>Diminishing Marginal Utility </li></ul>LAW OF DEMAND
<ul><li>Diminishing Marginal Utility </li></ul>LAW OF DEMAND <ul><li>Income Effect  </li></ul>
<ul><li>Diminishing Marginal Utility </li></ul>LAW OF DEMAND <ul><li>Income Effect  </li></ul><ul><li>Substitution Effect ...
<ul><li>Diminishing Marginal Utility </li></ul><ul><li>Income Effect  </li></ul><ul><li>Substitution Effect </li></ul>LAW ...
GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10  20  30 ...
GRAPHING DEMAND 55 P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10  20  ...
GRAPHING DEMAND 35 P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10  20  ...
GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10  20   30...
GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10   20  30...
GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN Connect the Points 10  20...
GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10  20  30  40  50  60  7...
GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 D Price of Corn Quantity of Corn CORN 10  20  30  40  50  60  70  80 D’ Increa...
GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10  20  30  40  50  60  7...
GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10  20  30  40  50  60  7...
DETERMINANTS OF DEMAND <ul><li>Tastes </li></ul><ul><li>Number of Buyers </li></ul><ul><li>Income </li></ul><ul><ul><li>No...
SUPPLY DEFINED $1 2 3 4 5 CORN Supply is a schedule or a curve showing the amounts of a product that producers are willing...
LAW OF SUPPLY <ul><li>As Price Rises… </li></ul><ul><li>… Quantity Supplied Rises </li></ul><ul><li>As Price Falls… </li><...
GRAPHING SUPPLY 5 P Q o $5 4 3 2 1 10  20  30  40  50  60  70  80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn ...
GRAPHING SUPPLY P Q o $5 4 3 2 1 10  20   30  40  50  60  70  80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn C...
GRAPHING SUPPLY 35 P Q o $5 4 3 2 1 10  20  30  40  50  60  70  80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn...
GRAPHING SUPPLY P Q o $5 4 3 2 1 10  20  30  40  50   60  70  80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn C...
GRAPHING SUPPLY P Q o $5 4 3 2 1 10  20  30  40  50  60   70  80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn C...
GRAPHING SUPPLY S P Q o $5 4 3 2 1 10  20  30  40  50  60  70  80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn ...
GRAPHING SUPPLY S P Q o $5 4 3 2 1 10  20  30  40  50  60  70  80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn ...
GRAPHING SUPPLY S P Q o $5 4 3 2 1 10  20  30  40  50  60  70  80 Price of Corn Quantity of Corn $5 4 3 2 1 60 50 35 20 5 ...
GRAPHING SUPPLY S P Q o $5 4 3 2 1 10  20  30  40  50  60  70  80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn ...
GRAPHING SUPPLY S P Q o $5 4 3 2 1 10  20  30  40  50  60  70  80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn ...
DETERMINANTS OF SUPPLY <ul><li>Resource Prices </li></ul><ul><li>Technology </li></ul><ul><li>Taxes & Subsidies </li></ul>...
DETERMINANTS OF SUPPLY <ul><li>Resource Prices </li></ul><ul><li>Technology </li></ul><ul><li>Taxes & Subsidies </li></ul>...
MARKET DEMAND & SUPPLY  $5 4 3 2 1 10 20 35 55 80 $5 4 3 2 1 60 50 35 20 5 200 B U Y E R S MARKET DEMAND 2,000 4,000 7,000...
MARKET DEMAND & SUPPLY  7 S P Q o $5 4 3 2 1 2  4  6  8  10  12  14  16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 ...
MARKET DEMAND & SUPPLY  7 S P Q o $5 4 3 2 1 2  4   6  8  10   12  14  16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 ...
MARKET DEMAND & SUPPLY  11 7 S P Q o $5 4 3 2 1 2  4   6  8  10  12  14  16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 ...
MARKET DEMAND & SUPPLY  11 7 S P Q o $5 4 3 2 1 2  4   6  8  10  12  14  16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 ...
MARKET EQUILIBRIUM  <ul><li>Equilibrium Price & Quantity </li></ul><ul><li>Rationing Function of Prices </li></ul><ul><li>...
Complex Cases <ul><li>Supply Increases;  Demand Decreases </li></ul><ul><ul><li>Prices Decrease </li></ul></ul><ul><ul><li...
Complex Cases <ul><li>Supply Increases;  Demand Increases </li></ul><ul><ul><li>Prices Indeterminate </li></ul></ul><ul><u...
Government Set Prices <ul><li>Price Ceilings </li></ul><ul><ul><li>Shortages </li></ul></ul><ul><ul><li>Rationing Problem ...
Price Ceiling <ul><li>A maximum price that sellers may charge for a good, usually set by government. </li></ul><ul><li>Exc...
Price ceiling <ul><li>Price Rationing  :The process by which the market system allocates goods and services to consumers w...
<ul><li>PRICE FLOORS </li></ul><ul><li>Price floor   A minimum price below which exchange is not permitted. </li></ul><ul>...
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demand n supply

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demand n supply

  1. 1. Individual Markets: Demand & Supply
  2. 2. MARKETS DEFINED MARKETS POTENTIAL SELLERS POTENTIAL BUYERS
  3. 3. DEMAND DEFINED $5 4 3 2 1 10 20 35 55 80 A schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices. P Q D
  4. 4. LAW OF DEMAND <ul><li>As Price Falls… </li></ul><ul><li>… Quantity Demanded Rises </li></ul><ul><li>As Price Rises… </li></ul><ul><li>… Quantity Demanded Falls </li></ul>An inverse relationship exists between price and quantity demanded
  5. 5. <ul><li>Diminishing Marginal Utility </li></ul>LAW OF DEMAND
  6. 6. <ul><li>Diminishing Marginal Utility </li></ul>LAW OF DEMAND <ul><li>Income Effect </li></ul>
  7. 7. <ul><li>Diminishing Marginal Utility </li></ul>LAW OF DEMAND <ul><li>Income Effect </li></ul><ul><li>Substitution Effect </li></ul>
  8. 8. <ul><li>Diminishing Marginal Utility </li></ul><ul><li>Income Effect </li></ul><ul><li>Substitution Effect </li></ul>LAW OF DEMAND <ul><li>Demand Curve </li></ul><ul><li>Individual and Market Demand </li></ul>
  9. 9. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D
  10. 10. GRAPHING DEMAND 55 P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D
  11. 11. GRAPHING DEMAND 35 P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D
  12. 12. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D
  13. 13. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D
  14. 14. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN Connect the Points 10 20 30 40 50 60 70 80 P Q D
  15. 15. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if Demand Increases? P Q D
  16. 16. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 D’ Increase in Demand Increase in Quantity Demanded 10 20 35 55 80 30 40 60 80 + P Q D
  17. 17. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if Demand Decreases? P Q D
  18. 18. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 -- 10 20 40 60 D’ Decrease in Demand Decrease in Quantity Demanded P Q D
  19. 19. DETERMINANTS OF DEMAND <ul><li>Tastes </li></ul><ul><li>Number of Buyers </li></ul><ul><li>Income </li></ul><ul><ul><li>Normal (Superior) & Inferior Goods </li></ul></ul><ul><li>Prices of Related Goods </li></ul><ul><ul><li>Substitutes & Complements </li></ul></ul><ul><ul><li>Unrelated Goods </li></ul></ul><ul><li>Expectations </li></ul>
  20. 20. SUPPLY DEFINED $1 2 3 4 5 CORN Supply is a schedule or a curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices. 5 20 35 50 60 P Q S
  21. 21. LAW OF SUPPLY <ul><li>As Price Rises… </li></ul><ul><li>… Quantity Supplied Rises </li></ul><ul><li>As Price Falls… </li></ul><ul><li>… Quantity Supplied Falls </li></ul>A direct relationship exists between price and quantity supplied
  22. 22. GRAPHING SUPPLY 5 P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Plot the Points P Q S
  23. 23. GRAPHING SUPPLY P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Plot the Points P Q S
  24. 24. GRAPHING SUPPLY 35 P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Plot the Points P Q S
  25. 25. GRAPHING SUPPLY P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Plot the Points P Q S
  26. 26. GRAPHING SUPPLY P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Plot the Points P Q S
  27. 27. GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Connect the Points P Q S
  28. 28. GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN What if Supply Increases? P Q S
  29. 29. GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 Price of Corn Quantity of Corn $5 4 3 2 1 60 50 35 20 5 CORN 80 70 60 45 30 S’ Increase in Supply Increase in Quantity Supplied P Q S
  30. 30. GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN What if Supply Decreases? P Q S
  31. 31. GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN S’ 45 30 20 0 -- Decrease in Supply Decrease in Quantity Supplied P Q S
  32. 32. DETERMINANTS OF SUPPLY <ul><li>Resource Prices </li></ul><ul><li>Technology </li></ul><ul><li>Taxes & Subsidies </li></ul><ul><li>Prices of Other Goods </li></ul><ul><li>Price Expectations </li></ul><ul><li>Number of Sellers </li></ul>
  33. 33. DETERMINANTS OF SUPPLY <ul><li>Resource Prices </li></ul><ul><li>Technology </li></ul><ul><li>Taxes & Subsidies </li></ul><ul><li>Prices of Other Goods </li></ul><ul><li>Price Expectations </li></ul><ul><li>Number of Sellers </li></ul>Combining with Demand
  34. 34. MARKET DEMAND & SUPPLY $5 4 3 2 1 10 20 35 55 80 $5 4 3 2 1 60 50 35 20 5 200 B U Y E R S MARKET DEMAND 2,000 4,000 7,000 11,000 16,000 200 S E L L E R S 12,000 10,000 7,000 4,000 1,000 MARKET SUPPLY EQUILIBRIUM Graphically… x x P Q D BUSHELS OF CORN P Q S BUSHELS OF CORN
  35. 35. MARKET DEMAND & SUPPLY 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of Corn Quantity of Corn CORN MARKET CORN MARKET Market Clearing Equilibrium P Q D P Q S
  36. 36. MARKET DEMAND & SUPPLY 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of Corn Quantity of Corn CORN MARKET CORN MARKET Surplus At a $4 price more is being supplied than demanded P Q D P Q S
  37. 37. MARKET DEMAND & SUPPLY 11 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of Corn Quantity of Corn CORN MARKET CORN MARKET At a $2 price more is being demanded than supplied Shortage P Q D P Q S
  38. 38. MARKET DEMAND & SUPPLY 11 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of Corn Quantity of Corn CORN MARKET CORN MARKET Shortage Surplus P Q D P Q S
  39. 39. MARKET EQUILIBRIUM <ul><li>Equilibrium Price & Quantity </li></ul><ul><li>Rationing Function of Prices </li></ul><ul><li>Changes in Demand </li></ul><ul><li>Changes in Quantity Demanded </li></ul><ul><li>Changes in Supply </li></ul><ul><li>Changes in Quantity Supplied </li></ul>
  40. 40. Complex Cases <ul><li>Supply Increases; Demand Decreases </li></ul><ul><ul><li>Prices Decrease </li></ul></ul><ul><ul><li>Quantity Indeterminate </li></ul></ul><ul><li>Supply Decreases; Demand Increases </li></ul><ul><ul><li>Price Increases </li></ul></ul><ul><ul><li>Quantity Indeterminate </li></ul></ul>Multiple Shifts…
  41. 41. Complex Cases <ul><li>Supply Increases; Demand Increases </li></ul><ul><ul><li>Prices Indeterminate </li></ul></ul><ul><ul><li>Quantity Increases </li></ul></ul><ul><li>Supply Decreases; Demand Decreases </li></ul><ul><ul><li>Price Indeterminate </li></ul></ul><ul><ul><li>Quantity Decreases </li></ul></ul>Multiple Shifts…
  42. 42. Government Set Prices <ul><li>Price Ceilings </li></ul><ul><ul><li>Shortages </li></ul></ul><ul><ul><li>Rationing Problem </li></ul></ul><ul><ul><li>Black Markets </li></ul></ul><ul><ul><li>Rent Controls </li></ul></ul><ul><li>Price Floors </li></ul><ul><ul><li>Surpluses </li></ul></ul>
  43. 43. Price Ceiling <ul><li>A maximum price that sellers may charge for a good, usually set by government. </li></ul><ul><li>Excess Demand (Shortage) Created by a Price Ceiling </li></ul>
  44. 44. Price ceiling <ul><li>Price Rationing :The process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied. </li></ul><ul><li>Ration coupons Tickets or coupons that entitle individuals to purchase a certain amount of a given product per month. </li></ul><ul><li>Black market A market in which illegal trading takes place at market-determined prices. </li></ul>
  45. 45. <ul><li>PRICE FLOORS </li></ul><ul><li>Price floor A minimum price below which exchange is not permitted. </li></ul><ul><li>Minimum wage A price floor set under the price of labor. </li></ul><ul><li>Agricultural Products </li></ul>

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