MARKETS AND COMPETITION A is a group of buyers and sellers of a particular good or service The terms and refer to the behavior of people as they interact with one another in MARKETS AND COMPETITION Buyers determine Sellers determine Competitive Markets A is a market in which there are many buyers and sellers so that each has a negligible impact on the market price 1 Competition Perfect and Otherwise Perfect Competition Products are buyers and sellers so that each has influence over price Buyers and Sellers are Monopoly seller and seller controls Competition Perfect and Otherwise Oligopoly sellers aggressive competition Monopolistic Competition sellers products Each seller may set for its own product DEMAND is the amount of a good that buyers are willing and able to purchase Law of Demand The states that other things equal the quantity demanded of a good falls when the price of the good rises 2 The Demand Curve The Relationship between Price and Quantity Demanded Demand Schedule The is a table that shows the relationship between the price of the good and the quantity demanded Demand Schedule The Demand Curve The Relationship between Price and Quantity Demanded Demand Curve The is a graph of the relationship between the price of a good and the quantity demanded 3 Demand Schedule and Demand Curve Price of Ice Cream Cone 3 00 2 50 1 A decrease in price 2 00 1 50 1 00 0 50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice Cream Cones 2 increases quantity of cones demanded Market Demand versus Individual Demand refers to the sum of all individual demands for a particular good or service Graphically individual demand curves are summed to obtain the market demand curve Shifts in the Demand Curve Change in Quantity Demanded Movement Caused by a change in 4 Changes in Quantity Demanded Price of IceCream Cones B 2 00 A tax that raises the price of ice cream cones results in a movement along the demand curve A 1 00 D 0 4 8 Quantity of Ice Cream Cones Shifts in the Demand Curve Shifts in the Demand Curve Change in Demand A in the demand curve either to the left or right Caused by any change that alters the quantity demanded 5 Shifts in the Demand Curve Price of Ice Cream Cone Increase in demand Decrease in demand Demand curve D3 Demand curve D1 Demand curve D2 Quantity of Ice Cream Cones 0 Shifts in the Demand Curve Consumer Income As income increases the demand for a will increase As income increases the demand for an will decrease Consumer Income Normal Good Price of IceCream Cone 3 00 An increase in income 2 50 Increase in demand 2 00 1 50 1 00 0 50 D1 0 1 2 3 4 5 6 7 8 9 10 11 12 D2 Quantity of Ice Cream Cones 6 Consumer Income Inferior Good Price of IceCream Cone 3 00 2 50 An increase in income 2 00 Decrease in demand 1 50 1 00 0 50 0 1 D2 D1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice Cream Cones Shifts in the Demand Curve Prices of Related Goods When a fall in the price of one good reduces the demand for another good the two goods are called When a fall in the price of one good increases the demand for another good the two goods are called Variables That Influence Buyers 7 SUPPLY Equilibrium is the amount of a good that sellers are willing and able to sell Law of Supply The states that other things equal the quantity supplied of a good rises when the price of the good rises The Supply Curve The Relationship between Price and Quantity Supplied Supply Schedule The is a table that shows the relationship between the price of the good and the quantity supplied Supply Schedule 8 The Supply Curve The Relationship between Price and Quantity Supplied Supply Curve The is the graph of the relationship between the price of a good and the quantity supplied Ben s Supply Schedule and Supply Curve Price of Ice Cream Cone 3 00 1 An increase in price 2 50 2 00 1 50 1 00 0 50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice Cream Cones 2 increases quantity of cones supplied Market Supply versus Individual Supply refers to the sum of all individual supplies for all sellers of a particular good or service Graphically individual supply curves are summed to obtain the market supply curve 9 Shifts in the Supply Curve Shifts in the Supply Curve Change in Quantity Supplied Movement the supply curve Caused by a change in anything that alters the quantity supplied Change in Quantity Supplied Price of IceCream Cone S C 3 00 A rise in the price of ice cream cones results in a movement along the supply curve A 1 00 0 1 5 Quantity of Ice Cream Cones 10 Shifts in the Supply Curve Change in Supply A in the supply curve either to the left or right Caused by a change in a determinant Shifts in the Supply Curve Price of Ice Cream Cone Supply curve S3 Supply curve S1 Decrease in supply Supply curve S2 Increase in supply 0 Quantity of Ice Cream Cones Variables That Influence Sellers 11 SUPPLY AND DEMAND TOGETHER Equilibrium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded SUPPLY AND DEMAND TOGETHER Equilibrium Price The price that balances quantity supplied and quantity demanded On a graph it is the price at which the supply and intersects demand curves The quantity supplied and the quantity demanded at the equilibrium price On a graph it is the quantity at which the supply and demand curves SUPPLY AND DEMAND TOGETHER Demand Schedule Supply Schedule At 2 00 the quantity demanded is equal to the quantity supplied 12 The Equilibrium of Supply and Demand Price of Ice Cream Cone Supply Equilibrium Equilibrium price 2 00 Equilibrium quantity 0 1 2 3 4 5 6 7 8 Demand 9 10 11 12 13 Quantity of Ice Cream Cones Markets Not in Equilibrium a Excess Supply Price of Ice Cream Cone Supply Surplus 2 50 2 00 Demand 0 4 Quantity demanded 7 10 Quantity supplied Quantity of Ice Cream Cones Equilibrium Surplus When price equilibrium price then quantity supplied quantity demanded surplus excess supply a There is or lower the price to increase sales Suppliers will thereby moving toward equilibrium 13 Equilibrium Shortage When price equilibrium price then quantity demanded the quantity supplied excess demand There is or a Surplus raise Suppliers will the price due to too many buyers chasing too few goods thereby moving toward equilibrium Markets Not in Equilibrium b Excess Demand Price of Ice Cream Cone Supply 2 00 1 50 Shortage Demand 0 4 Quantity supplied 7 10 Quantity of Quantity Ice Cream demanded Cones Equilibrium supply and demand supply and demand Law of The claim that the price of any