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Chapter 4 The Market Forces of Supply and Demand

Chapter 4 The Market Forces of Supply and Demand. Objectives. 1. Understand the concept of a competitive market . 2. Learn the factors that determine market demand . 3. Learn the factors that determine market supply .

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Chapter 4 The Market Forces of Supply and Demand

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  1. Chapter 4 The Market Forces of Supply and Demand

  2. Objectives 1. Understand the concept of a competitivemarket. 2. Learn the factors that determine market demand. 3. Learn the factors that determine market supply. 4. Understand how and why demand and supply forces establish market prices and quantities. 5. Learn how prices and markets allocate society’s scarce resources.

  3. Understanding Individual Markets: DEMAND AND SUPPLY WHY DON'T WE ALL DRIVE FERRARIS?

  4. MARKETS DEFINED

  5. Markets • A market is a group of buyers and sellers of a particular good or service. • The terms supply and demand refer to the behavior of people . . . as they interact with one another in markets.

  6. Markets • Buyersdeterminedemand. • Sellersdeterminesupply.

  7. MARKETS DEFINED COMPETITION .... FOR PRODUCTS & RESOURCES

  8. MARKETS DEFINED COMPETITION .... FOR PRODUCTS & RESOURCES PRICES

  9. MARKETS DEFINED COMPETITION .... FOR PRODUCTS & RESOURCES PRICES .... THE RATIONING FUNCTION

  10. Competition: Perfect and Otherwise • Is a market structure characterized by • Many buyers and sellers • Homogenius product • No control over price • Very easy enterance and exit from market Perfect Competition

  11. Quantity Demanded The Quantity demanded is the amount of a good or service that buyers are willing and able to purchase.

  12. Law of Demand The claim that, other things being equal, the quantity demanded of a good or service falls when the price of the good rises. -Ceteris Paribus

  13. DEMAND & SUPPLY LAW OF DEMAND

  14. DEMAND & SUPPLY LAW OF DEMAND FOR HIGHER PRICES

  15. DEMAND & SUPPLY LAW OF DEMAND FOR HIGHER PRICES LESS QUANTITY IS DEMANDED

  16. DEMAND... INVERSE PRICE AND QUANTITY RELATIONSHIP ILLUSTRATED....

  17. P Q d $ 1 80 $ 2 55 $ 3 35 $ 4 20 $ 5 10 Q d DEMAND... P P L O T T H E P O I N T S o

  18. P Q d $ 1 80 $ 2 55 $ 3 35 $ 4 20 $ 5 10 Q d DEMAND... P 5 4 3 2 1 o 20 10 35 55 80

  19. P Q d $ 1 80 $ 2 55 $ 3 35 $ 4 20 $ 5 10 Q d DEMAND... P 5 4 3 2 1 o 10 20 35 55 80

  20. P Q d $ 1 80 $ 2 55 $ 3 35 $ 4 20 $ 5 10 Q d DEMAND... P 5 4 3 2 1 o 10 20 35 55 80

  21. P Q d $ 1 80 $ 2 55 $ 3 35 $ 4 20 $ 5 10 Q d DEMAND... P ETC. 5 4 3 2 1 o 10 20 35 55 80

  22. P Q d $ 1 80 $ 2 55 $ 3 35 $ 4 20 $ 5 10 Q d DEMAND... P 5 4 CONNECT THE DOTS 3 2 1 o 10 20 35 55 80

  23. P Q d $ 1 80 $ 2 55 $ 3 35 $ 4 20 $ 5 10 Q d DEMAND... P 5 4 3 2 1 o 10 20 35 55 80

  24. P Q d $ 1 80 $ 2 55 $ 3 35 $ 4 20 $ 5 10 Q d DEMAND... P 5 4 3 2 D 1 o 10 20 35 55 80

  25. Movement Along Versus a Shift of the Demand Curve • If the price of a good changes but everything else remains the same,there is a movement along thedemand curve. • If the price of a good remains constantbut some other influence on buyers’ plans changes, there is a shift of the demand curve.

  26. A Change in Quantity Demanded Versus a Change in Demand • A movement along the demand curve shows a change in the quantity demanded.

  27. A Change in Quantity Demanded Versus a Change in Demand • A shift of the demand curve shows achange in demand. • A movement along the demand curve shows a change in the quantity demanded.

  28. Market Demand • Market demand refers to the sum of all individual demands for a particular good or service. • Graphically, individual demand curves are summed horizontally to obtain the market demand curve.

  29. DETERMINANTS OF DEMAND NON - PRICE

  30. DETERMINANTS OF DEMAND NON - PRICE TASTES

  31. DETERMINANTS OF DEMAND NON - PRICE TASTES NUMBER OF BUYERS

  32. DETERMINANTS OF DEMAND NON - PRICE TASTES NUMBER OF BUYERS INCOME Normal or Inferior Goods

  33. DETERMINANTS OF DEMAND NON - PRICE TASTES NUMBER OF BUYERS INCOME Normal or Inferior Goods PRICE OF RELATED GOODS Substitutes or Complements

  34. DETERMINANTS OF DEMAND NON - PRICE TASTES NUMBER OF BUYERS INCOME Normal or Inferior Goods PRICE OF RELATED GOODS Substitutes or Complements EXPECTATIONS

  35. Quantity Supplied The Quantity supplied is the amount of a good or service that sellers are willing and able to sell.

  36. Law of Supply Law of supply is the claim that, other things being equal, the quantity supplied of a good or service rises when the price of the good or service rises. -Ceteris Paribus

  37. DEMAND & SUPPLY LAW OF SUPPLY

  38. DEMAND & SUPPLY LAW OF SUPPLY FOR HIGHER PRICES

  39. DEMAND & SUPPLY LAW OF SUPPLY FOR HIGHER PRICES GREATER QUANTITY IS SUPPLIED

  40. DEMAND & SUPPLY LAW OF SUPPLY FOR HIGHER PRICES GREATER QUANTITY IS SUPPLIED SUPPLY IS ALWAYS BASED UPON A FIRM'S COSTS

  41. Market Supply • Market supply refers to the sum of all individual supplies for all sellers of a particular good or service. • Graphically, individual supply curves are summed horizontally to obtain the market supply curve.

  42. SUPPLY... DIRECT PRICE AND QUANTITY RELATIONSHIP ILLUSTRATED....

  43. P Q s S $ 1 5 T N $ 2 20 I O P $ 3 35 E H T $ 4 50 T O P L $ 5 60 Q s SUPPLY... P o

  44. P Q s $ 1 5 $ 2 20 $ 3 35 $ 4 50 $ 5 60 Q s SUPPLY... P 5 4 3 2 1 o 10 20 35 55 80

  45. P Q s $ 1 5 $ 2 20 $ 3 35 $ 4 50 $ 5 60 Q s SUPPLY... P 5 4 3 2 1 o 10 20 35 55 80

  46. P Q s $ 1 5 $ 2 20 $ 3 35 $ 4 50 $ 5 60 Q s SUPPLY... P 5 4 3 2 1 o 10 20 35 55 80

  47. P Q s $ 1 5 $ 2 20 $ 3 35 $ 4 50 $ 5 60 Q s SUPPLY... P 5 4 3 ETC. 2 1 o 10 20 35 55 80

  48. P Q s $ 1 5 $ 2 20 $ 3 35 $ 4 50 $ 5 60 Q s SUPPLY... P 5 4 3 CONNECT THE DOTS 2 1 o 10 20 35 55 80

  49. P Q s $ 1 5 $ 2 20 $ 3 35 $ 4 50 $ 5 60 Q s SUPPLY... P S 5 4 3 2 1 o 10 20 35 55 80

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