Chapter+Four

=**CHAPTER 4** = =**The Market Forces of Supply and Demand** =  Market in organized in a very simple/complex manner. A competitive market is where no single buyer/seller can affect the price. Here buyers and sellers are responsible for the demand and supply. With supply and demand we can see how the market works, by using the supply/demand curve. There are equilibrium prices where the price and quantity of a good is at balance, and there are also shortages and surplus. Basically we are able to observe a market by observing the supply/demand curve and the relationship between buyers and sellers.
 * Summary**:

**What’s Market? ** The //market// is a group of buyers and sellers of a good, where buyers determine the demand, and the sellers determine the supply. Markets vary in many aspects; size, level of organization, and complexity. They can be as organized to as having a time, place, and way or prices are set and business takes place. Or they can be simple as a flower stand on the street, where there is no set time or place.

**What’s competition?** Markets are competitive, meaning there are multiple sellers from which a buyer can choose. Since the goods are similar from seller to seller, one seller and one buyer cannot determine the price and quantity of a good by themselves. This is a process where buyer and seller interact in. This is called //competitive market,// a market where one seller or buyer can’t affect the price, because there are too many other sellers/buyers. To help understand all this, let think that markets are perfectly competitive. This means, the goods that are sold are all perfectly the same and that it’s a competitive market. Since no one can affect the market price by themselves, they must work with the price that the market has set up. People in this situation are called price takers.

** Demand **
<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(245, 159, 91);">**Demand curve: relationship between price and quantity demanded** //Quantity demanded// is how much good a buyer is willing / able to buy. The quantity demanded is affected by the price of which the sellers put the good to be. When prices go up, people would by less, when prices go down, people will by more, this is the relationship between price and quantity demanded. This is what economist call the //law of demand// **<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;">//.//

<span style="color: rgb(250, 148, 61);"> <span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;">Shifts in the Demand Curve **<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"> <span style="color: rgb(235, 70, 0);"><span style="color: rgb(255, 113, 0);">The demand curve may change depending on many factors that influence the buyer’s decision, therefore the demand curve shirts. When it increases, the d curve shifts right, and when demand decreases, the curve shifts left. The factors that shift the demand curve are:

//Income//**-**This is when your income allows you to buy more or less of a good. If you buy more when income falls, the good is called a normal good. If buy less, it is called an inferior good. //Prices of Related Goods//**-** ex: If price of orange juice falls and it leads to the decrease in demand for tomato juice, then the two are substitutes. If the price of orange juices rises than the demand for oranges will fall this is called compliments. //Tastes//**-** if someone likes something, you buy more, if not you buy less. //Expectations//**-** if you expect better the price of “soda” to drop next week, you would buy less this week, and buy more next week. And the idea works the other way too**.** //Number of Buyers//**-** if more people buy the good, the quantity demanded would increase at every price.

<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(26, 165, 249);">Supply Curve: The Relationship between Price and Quantity Supplied
<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;">//Quantity supplied// is how much sellers are willing and able to sell. The idea is similar to quantity demanded. Keeping in mind that there are many determinants for quantity supplied, when price of a good is high, you sell more to gain more profit. On the other hand, it the price is low, you sell less. In cases, when the price is too low, sellers may even shut down. Quantity supplied rises when prices rises and falls when price falls; it is a positively related price of good. Economists call this the //law of supply.//

<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(89, 132, 243);">Shifts in the Supply curve
<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(13, 50, 191);">The supply curve shows how much a seller will offer at any given price. Like the demand curve, there are many factors that influence the producers’ decision to sell. The factors that shift the supply curve are: //Input Prices-// When the prices of the inputs increase, the supply will decrease because it is not profitable. //Technology-// when technology improves it lowers the input price, allowing less money to be spent on input price. Making things more profitable. //Expectations-// //i//f seller predicts that the price of the good he/she sells will increase in a week, then he/she will store the good for a while and sell when the price is up. //Number of Sellers-// when the number of sellers increases, the quantity supplied in the market increases at every price.

<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(41, 199, 41);">Equilibrium
<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"> When you put the supply curve and the demand curve together you will notice that there is one point where they intersect. That point is called the market’s //e////quilibrium//. Also, the price on that point is the //equilibrium price,// and the quantity on that point is called the //equilibrium quantity.// In equilibrium, the quantity and price supplied and demanded are balanced. It is natural for the market to reach equilibrium. It is only natural that it does, considering the actions of the buyers and sellers and considering what happens when the market price is not equal. If there is more quantity supplied than the quantity demanded the market will experience a surplus with the good. The market would respond to this by lowering prices, which will increase, quantity demanded and increase quantity supplied, moving the market to equilibrium again. If there is more quantity demanded than quantity supplied, the market will experience shortage. When there are too many buyers for little good, sellers respond by raising the price. This way they will not lose sale, and as price rises, quantity demand falls and quantity supplied rises, and again the market moves towards equilibrium. As you can see in the graph below, the actions of the buyers and sellers naturally lead the price and quantity towards equilibrium. This is called the //law of supply and demand//, when price is adjusted to bring the quantity supplied and demanded into balance.

<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(18, 41, 248);">Three Steps in Analyzing Changes in Equilibrium
<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(6, 47, 136);">1. Deciding if the event shifts the supply or demand curve, or even both. 2. Deciding in which how it shifts; left or right. 3. Look at the supply and demand graph to see how the shift affects the equilibrium.

<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(245, 10, 176);">Shifts in Curves vs. Movements along Curves
<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(100, 6, 198);">Keep in mind that shifts in the supply curve represents the change in “supply”, while movements along the curve represents the change in “quantity supplied”. Supply refers to the position of the supply curve, and the quantity supplied refers to the amount sellers are willing to sell. Also keep in mind that change in the equilibrium price only occurs when the curves shift.

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<span style="color: rgb(211, 200, 9);">Vocabulary:
<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;">//Market- interaction of buyers and sellers of a certain good or service Competitive market- a market in where no buyer or seller can influence the market price because there are so many of them. Quantity demanded- how much good a buyer is willing / able to buy. Law of demand- prices go up, people would by less, when prices go down, people will by more, this is the relationship between price and quantity demanded Quantity supplied- how much a seller is willing/ able to sell. Law of supply- Quantity supplied rises when prices rises and falls when price falls; it is a positively related price of good. Normal good- with more income, you buy more of the good Inferior good- with more income, you buy less of the good Substitutes- two goods for which the price of one and the demand for the other have the positive relationship Complements- two goods for which the price of one and the demand for the other have the negative relationship Equilibrium- When market price is at a level where quantity supplied is equal to quantity demanded. Equilibrium price- When price is balanced between quantity supplied and quantity demanded. Equilibrium quantity- When quantity supplied and demanded is at equilibrium price. Surplus- If there is more quantity supplied than the quantity demanded Shortage- If there is more quantity demanded than quantity supplied//

<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;">Questions:
<span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;"> 1. What makes the demand and supply curves shift? 2. What aspects of a competitive market differ it from a normal market? 3. How does the actions of the sellers and buyers make the market price come back to equilibrium price?

1. <span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;">//Income//**,** //Prices of Related Goods//**,**//Tastes//**,**//Expectations//**,**//Number of Buyers// **and** <span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;">//Input Prices,////Technology,// //Expectations,// //Number of Sellers. 2. In a competitive market, the goods sold are perfectly the same, which is why no single person has influence on the market's price. 3.// <span style="font-size: 110%; font-family: 'Comic Sans MS',cursive;">If there is more quantity supplied than the quantity demanded the market will experience a surplus with the good. The market would respond to this by lowering prices, which will increase, quantity demanded and increase quantity supplied, moving the market to equilibrium again.
 * Answers**: