PowerPoint PresentationSlide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Slide 34Slide 35Slide 36Slide 37Slide 38Slide 39Slide 40Slide 41Slide 42Slide 43Slide 44Slide 45Slide 46Slide 47Slide 48Slide 49Markets and DemandOverheadsMarketsA market is a situation in which buyers and sellers can negotiate the exchange of some product or products.A market is a group of buyers and seller with the potential to trade.The economy is just a collectionof individual markets.Separate, analyze, put back together Separate, analyze, put back togetherFarmer’s MarketExamples of MarketsCattle auctionTractor marketUsed car marketMarkets can be of many sizesSome markets are localSome markets are regionalSome markets are nationalSome markets are globalThe purpose of the analysis determines the breadth of market we specify.We often describe markets by the degree ofcompetition by which they are characterized.Some markets are competitive ...some are not.Imperfectly competitive marketsImperfectly competitive marketsWhen a buyer or seller has the powerto influence the price of a product,we say that the market is imperfectly competitiveExamplesBreakfast cerealHeavy duty trucksSlaughter of cattleFructose syrupPurely competitive marketsPurely competitive marketsWhen buyer or sellers in a market arenot able affect the pricenot able affect the priceof a product, we say that the market is purely competitive, or just, competitive.When there are many buyer or sellers in a marketthey are usually not able affect the pricenot able affect the priceof their product.When there are few buyer or sellers in a marketthey are often able affect the priceable affect the priceof their product.ExamplesWheat at the production levelUnskilled laborFutures contracts on sugarCoffee, Sugar and Cocoa ExchangeCompetitive agentsA buyer or seller (agent) is said to be competitivecompetitiveif the agent assumes or believes that themarket price is given and that the agent's actionsdo not influence the market price.We call such an agent a price taker.Demand for a competitive agentThe total amount of a good that a competitive agent would choose to purchase at a given price is called the quantity demandquantity demand by that agent.The market demandmarket demand of a good is the total amount that all buyers in a marketall buyers in a market would choose to purchase at a given price.Supply for a competitive agentThe total amount of a good that acompetitive agent would chooseto produce and sell at a given priceis called the quantity supplied by that agent.The market supply of a good is the total amount that all sellers in a market would choose to produce and sell at a given price.Supply and demand are specifically relevantfor competitive marketsThe Demand FunctionThe demand function for a good is a rulethat specifies the quantity of the goodthat will be demanded at a given priceholding all other factors that affect thequantity demanded of the good constant.The Demand FunctionD h(P, ZD)D = quantity demandedZD = (z1, z2, z3, . . . , zr ) P = price of the goodZD = other factors that affect demandThe Law of DemandThe law of demand states that whenthe price of a good rises,and everything else remains the same, the quantity of the good demanded will fall.The Demand ScheduleThe demand schedule is a list showingthe quantities of a good that consumerswill choose to purchase at different prices, with all other variables held constant.Price (per lb) Quantity demanded.25 100000.5 90001 70001.25 60001.5 50001.75 40002 30002.25 20002.5 10000.75 8000Demand for HamburgerThe Demand CurveThe demand curve is agraphical depiction of a demand schedule;a line showing the quantity of a good or servicedemanded at various prices,with all other variables held constant.The Law of DemandThe law of demand says that thedemand curve has a negative slope(slopes downward)Demand for Hamburger Patties00.511.522.530 2000 4000 6000 8000 10000 12000QuantityPriceD0Other factors in the demand functionHousehold income and wealthPrices of other goodsPopulation or market sizeExpectationsTastesD = h (P, income, other prices, population, expectations, tastes )Demand depends on many thingsD h(P, ZD)Changes in DemandA change in demandchange in demand is a changein the entire relationshipentire relationship between priceand quantity demanded. An increase in demand means that buyerswould choose to buy more at any price. A decrease in demand means that theywould choose to buy less at any price.Example change in demand.25 100000.5 9000.75 80001 70001.25 60001.5 50001.75 40002 30002.25 20002.5 1000Price (per lb) Quantity DemandedNew QuantityDemanded9000800070006000500040003000200010000Salmonella ReportChanges in demand are represented by a shift in the demand curve.Demand for Hamburger PattiesSalmonella Threat00.511.522.530 2000 4000 6000 8000 10000 12000QuantityPriceD0D1Changes in demand are represented by a shift in the demand curve.When demand increasesincreases,the demand curve shifts to the rightright;when demand decreasesdecreases,the demand curve shifts to the leftleft.Changes in demand as compared to changes in the quantity demandedAlong a fixed demand curvefixed demand curve, as price changes the quantity demanded will change.This is called a change in the quantity demandedin contrast to a change in demandthat shifts the whole curveChange in quantity demandedMovement along a fixed schedule or curveChange in demandChange in the whole schedule or curveDemand for Hamburger Patties00.511.522.530 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000QuantityPriceD0D1Salmonella ThreatChange in quantity demandedChange in demandDemand for Hamburger PattiesChange in Price00.511.522.530 2000 4000 6000 8000 10000 12000QuantityPriceD0Change in quantity demandedDemand for Hamburger PattiesSalmonella Threat00.511.522.530 2000 4000 6000 8000 10000 12000QuantityPriceD0D1Change in demandFactors causing changes in demandHousehold income and wealthPrices of other goodsPopulation or market sizeExpectationsTastesIncome and WealthIncome is a flow variableand represents the amount that a person or firmearns over a particular period.Wealth is a stock variable and represents the total valueof everything a person or firm owns, at a point in time,minus the total
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