Chapter+4+Kathy+L

  

 //How do the supply and demand curves shift according to different factors in a market?//

 = = = =  What are supply and demand? You will be hearing these two terms quite frequently throughout the remainder of the textbook. Why? Well, supply and demand basically make the market economies work. They are a type of //behavior//. They behavior of people when they interact in competitive markets. To make further sense of supply, demand, and competitive markets, let us take a look at some of the basic terms that appear in this chapter.

Let's say that Mr. Ski just opened a coffee shop. The sellers of coffee and buyers of coffee come together to form what is called a //market//.

Now, in a market, we assumed that it has competition. Mr. Ski's market for coffee is, like any other market, very competitive. As a result, we may call it a competitive market.

Well, in a competitive market, we make another assumption: that consumers are price takers. In other words, buyers take the price that the market chooses. Some markets, however, might not be so competitive. In this case, it may be called a monopoly. We will further talk about monopoly in later chapters. 





 When suppliers and demanders come together, they form a market.

__**A Competitive Market (Free Market)**__ - Any one(firm or consumer) player in the market cannot affect the price on their own. They have to take the price that is set by the market. (ex) When it comes to //Coca-Cola//, we are price takers. We cannot change the price of the coke. There is already a set price for this. Neither do the sellers have the rights to change the price either! If a coke is too expensive, we would just walk out. Both the suppliers and demanders have to work together.

 =Demand=  __(1) Price per unit__ This is labeled in the y-axis, but this is the input or the independent variable.So if we are given a price, and it is taken out into the wide world of consumers, we would get offers of the ratio of price and units. If we make the price lower, the demand will increase.
 * Law of Demand**

__(2) Quantity of that unit__ The demand curve = WTP(willingness to pay) = value Whether you have the money but just decided not to buy it or you just don't have the ability to buy it, they are all drop in demand. We must say that the QUANTITY DEMAND(simply the price change) shifts, not the DEMAND.
 * //Be careful://

__(3) Price can only affect the Quantity Demanded__ (ex) If the Big Mac's price doubles, we don't want to buy it. If it is cut down, we would want to buy more. The Price of Big Macs is the only thing that changes. The value of Big Mac does not change because it tastes the same. HOWEVER, if we say that the Big Macs can make you smarter, then we would buy it no matter what price.

- __//Taste//__: Why sellers like working with people's taste by advertising (ex) Just do it, I'm lovin' it - //__Income__//: More value = more income = you can buy it = more things are worth it for you to buy - __//Expectation//__: Your expectation of future price. You might assume that the price would drop in the future and not buy the product, etc. - __//Price of related goods//__: if the complement's price goes up = the demand for the partner goes down > NEGATIVELY RELATED (ex) Hamburger and the bun. If the bun is expensive, the demand for hamburger goes down. If the hotdog is really cheap, then the demand for hotdog would go up compared to the hamburgers because they are substitutes. - //__# of buyers:__// a single buyer cannot change prices or quantity demanded. However, if half of America does not buy a good anymore, then the demand goes down. We're talking about percentages here.
 * Then, What shifts the DEMAND CURVE?**

(1) QUANTITY DEMANDED IS A POINT CREATED BY PRICE this is only affected by price
 * IMPORTANT! THESE CONCEPTS MAY BE CONFUSING . . .**

(2) DEMAND ITSELF IS THE ENTIRE CURVE BUILT BY ALL THE POINTS demand is affected by taste, income, expectations, price of related goods, and number of buyers

 =Supply= <span style="color: #404040; font-family: Verdana,Geneva,sans-serif;">Adding up everyone's personal desires = Market Demand

__- The increase in price per unit increases the quantity supplied__ (Supply = Cost per unit) __- The price goes up as they make more of the goods__ (ex) Cost $.50 a. Land b. Labor c. Capital Even if the original cost was .50 and it seems like there would be no benefit, since the owner of the company is included in 'labor' he does gain something. (Quantity supplied is affected by the price)
 * Law of Supply**

- //__Technology__// (ex) development of ice-cream machines that could make more ice-cream for less labor=lower price. - //__Input prices__// (the cost of the materials, etc=things that make it more expensive to make stuff) (ex) Singapore has the cheapest price of clothes because the cost of labor is ridiculously cheap there. - //__# of suppliers__// this would increase the price or decrease the supplies - //__Expectations of future prices__// (ex) if we know that the price would go up, we would start making more NOW. If we know that the price would soon drop, we would stop making it NOW and reduce production to prepare for the drop.<span style="font-family: 'Courier New',Courier,monospace;"> <span style="font-family: Verdana,Geneva,sans-serif;">
 * What about shifts in the SUPPLY CURVE?**

<span style="font-family: Verdana,Geneva,sans-serif;">
 * Equilibrium:**

At the point where the price, quantity, supply, and demand equals is where everyone is satisfied. (ex) if we know that the ice cream can make you run faster, the demand of ice cream would increase However, we still have the same amount being produced so this brings shortage. Thus, the buyers would be unsatisfied. - They would go to Cold Stone and pay more than necessary because they value it too much. - Thus, the price rises as more people demand the product and are willing to pay more for it. - But then, less people would start NOT buying it if the price goes up as a whole. -> THIS GOES BACK TO EQUILIBRIUM

- When there are more supplies than the quantity demanded, the sellers are unsatisfied -> SO the price would drop because the sellers would want at least SOME money than having their ice-cream sitting in the fridge.

ALWAYS, THE UNSATISFIED PEOPLE MAKE CHANGES

So, to make things simple:



<span style="font-family: Verdana,Geneva,sans-serif;"><span style="font-family: Verdana,Geneva,sans-serif;">

Which are the factors that shift the supply curve and why do they do so? - Technology - Taste - Input Prices - Expectation of future prices - Income - Price related goods - # of Suppliers

Answer: (highlight below to see) <span style="color: #ffffff; font-family: Verdana,Geneva,sans-serif;">- //__Technology__// (ex) development of ice-cream machines that could make more ice-cream for less labor=lower price. - //__Input prices__// (the cost of the materials, etc=things that make it more expensive to make stuff) (ex) Singapore has the cheapest price of clothes because the cost of labor is ridiculously cheap there. - //__# of suppliers__// this would increase the price or decrease the supplies - //__Expectations of future prices__// (ex) if we know that the price would go up, we would start making more NOW. If we know that the price would soon drop, we would stop making it NOW and reduce production to prepare for the drop. <span style="color: #404040; font-family: 'Courier New',Courier,monospace;">

<span style="font-family: Verdana,Geneva,sans-serif;"> <span style="font-family: Verdana,Geneva,sans-serif;"><span style="font-family: Verdana,Geneva,sans-serif;">
 * Competitive market**: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price.
 * Market:** A group of buyers and sellers of a particular good or service.
 * Quantity demanded:** the amount of a good that buyers are willing and able to purchase.
 * Law of Demand:** the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises.
 * Demand schedule**: a table that shows the relationship between the price of a good and the quantity demanded.
 * Demand Curve**: a graph of the relationship between the price of a good and the quantity demanded.
 * Normal Good:** A good for which, other things equal, an increase in income leads to an increase in demand.
 * Inferior Good:** A good for which, other things equal, an increase in income leads to a decrease in demand.
 * Substitutes:** two goods for which an increase in the price of one leads to an increase in the demand for the other.
 * Complements:** Two goods for which an increase in the price of one leads to a decrease in the demand for the other.
 * Quantity Supplied:** The amount of good the sellers are willing and able to sell.
 * Law of Supply:** The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.
 * Supply Schedule:** A table that shows the relationship between the price of a good and the quantity supplied.
 * Supply curve:** a graph of the relationship between the price of a good and the quantity supplied.
 * Equilibrium:** a situation in which the market price has reached the level at which quantity supplied equals quantity demanded.
 * Equilibrium Price:** the price that balanaces quantity supplied and quantity demanded.
 * Equilibrium quantity:** the quantity supplied and the quantity demanded at the equilibrium price.
 * Surplus:** A situation in which quantity supplied is greater than quantity demanded.
 * Shortage:** A situation in which quantity demanded is greater than the quantity supplied.
 * Law of supply and demand:** the claim that the price of any good adjusts o bring the quantity supplied and the quantity demanded for that good into balance.