Chapter+4+(The+Market+Forces+of+Supply+and+Demand)


 * Chapter 4: Th****e Market Forces of Supply and Demand**



Source: http://www.shoestring.co.kr/bbs/data/gal_aus_yha/Fish_Market_03.jpg = (Markets and Competition) =

** What is a Market? **
A market is a group of buyers and sellers who are interested in common goods or services. Markets can take many different forms. For examples, markets can be organized or less organized depending on what type of services or goods the sellers and the buyers are trading.

** What is Competition? **
Competition occurs in economy when sellers are producing similar or same goods at the same time. Because of competition, competitive markets exist in economy. It is a market in which there are so many buyers and sellers that each has a negligible impact on the market price.

** How to reach the highest form of competition? **
1) the goods offered for sale are all exactly the same 2) the buyers and sellers are so numerous that no one dictates the market price

Price takers are buyers and sellers in perfectly competitive markets who must accept the price the market determines.

Monopoly
It is a market that has only one seller and this seller sets the price.

= (Demand) =

The Demand Curve
- a graph that represents the relationship between the price and the quantity demanded.

What is Quantity Demanded?
-It is the amount of the good that buyers are willing to buy.

Unlike the quantity supplied, the quantity demanded is negatively related to the price. As the price of a good rises, the quantity demanded falls. This is called law of demand. A table that shows the relationship between the price of a good and the quantity demanded is called a demand schedule. In a demand curve as the graph moves to the left, the movement of graph is called a decrease in demand. On the other hand, as it moves to the right, it is called an increase in demand. Moreover, the market demand curve also reflects how the total quantity demanded of a good varies as the price of a good does.

(5 Factors that affect the demand curve)
1. //income// : when the income and the demand for a good fall together, then the good is called a normal good. On the other hand, if the income falls when the demand increases, then the product is called an inferior good. An example of inferior goods can be transportation.

2. //price of related goods// : when there is more than one good that can satisfy people’s desires, then the products are called substitutes. As the price of one good falls, the demand for another also reduces. For examples, hot dogs and hamburgers, sweaters and sweatshirts or movie tickets and video rentals are all substitutes to each other. However when the price of one leads to a decrease in the demand for the other, then these products are called complements. For examples, peanut butter and jelly, gasoline and automobiles, or computers and software are all complements.

3. //taste// : this is one of the most obvious determinants in demand curve. Since buyers are the ones who decided to purchase what products, taste is very important in markets.

4. //expectations// : Buyers’ expectations about future may affect the demand for a good or service.

5. //number of buyers// : the greater number of buyers for a good, the more quantity demanded in the graph occurs.

= (Supply) =

The Supply Curve
- a graph that represents the relationship between the price of a good and the quantity supplied

What is Quantity Supplied?
- it is the amount that sellers are willing or able to sell to buyers.

If the demand graph is negatively related to the price, then the supply curve is positively related to the price of a good. The law of supply shows how the quantity supplied changes as the price changes: as the price of a good rises, the quantity supplied also increases. The supply schedule is similar to the demand schedule, except that this one treats the relationship between the price of a good and the quantity supplied. Moreover, just like the demand curve, as the graph moves to the right, it is called an increase in supply. Also when the curve moves to the left, it is called a decrease in supply.

(4 Factors that shift the supply curve)
1. //Input prices// : If the input prices increase, then the quantity supplied will decrease. This happens because producers won’t want to produce less amount of good with the same amount of money.

2. //Technology// : As the technology improves, the amount of labor will be less essential in economy. The decrease in labor will cause the reduce in firms’ costs, which will raise the supply of a good.

3. //Expectations// : As it is in determinants of the demand curve, depending on the buyer’s expectations in future, the supply curve can move.

4. //Number of sellers// : If there are more sellers in a market, then factories will have to produce more products to sell. Therefore depending on the number of sellers, the supply curve will move to the right or to the left.

= (Equilibrium) =

What is Equilibrium?
- a situation in which the quantity supplied and demanded are identical at the same market price.



Source: http://63.229.12.241/images/b/ba/basic_supply_demand.png

What is equilibrium price and quantity?
- It is a market price that has the same amount of quantity supplied and demanded. Also equilibrium quantity is the point where the quantities supplied and demanded are identical.

Unlike other supply or demand curves, equilibrium graph has two things: surplus and shortage. Surplus occurs when the quantity supplied is greater than the quantity demanded. Moreover shortage occurs when the quantity demanded is greater than the quantity supplied. When surplus occurs in a market, it means there’s an excess supply. On the other hand if the shortage occurs in a market, it means there’s an excess demand.

What is Law of Supply and Demand?
- It is a rule which states that the price of any good adjusts to bring the quantity supplied and demanded for that good into balance.

(Videos) 1. Supply and Demand media type="youtube" key="JWVG0FAfgmA&hl=en&fs=1" height="344" width="425"

media type="file" key="Chapter 4.mp3"

Review Questions

1. List at least three factors that affect the demand curve. 2. Define the equilibrium. 3. What is the Law of Supply and Demand?

Answers

1. Income, Tastes, Expectations, Prices of related goods, Number of Buyers 2. Equilibrium is a state when the market has reached its balance in its supply and demand. 3. The price of any good adjusts to bring the quantity supplied and demanded for that good into balance.