Demand and Supply- Marketso Markets are the interaction between buyers and sellerso Markets may be  Local, national, international Face to face, or online o Price is determined in the market- Demando Can be presented as a schedule or a curveo Amount consumers are WILLING AND ABLE to purchase at a given priceo Can look at demand at  Individual level Market level - The Demand Curveo IPad example- Law of Demando Other things equal, as price falls, the quantity demanded rises, and as the price rises, thequantity demand falls  Other things equal assumption:- Nothing else in the economy changes- All other prices are constant (other goods and inputs)- Preferences stay the same- Income remains constant As price falls, as the price increases- The only change to the economy is a change in the price of the good which we are analyzing  The quantity demanded changes- Tells us the willingness and the ability of consumers have changed due to the price change - Price and quantity demand are inversely relatedo Reasons: Common sense  Law of diminishing marginal utility  income effect and substitution effect o Market Demand diagram: Prices at given price, add up individual demand to get market demand- Supplyo Can be depicted as a schedule or curveo The amount PRODUCERS are WILLING AND ABLE to sell at a given priceo We can look at  Individual Supply Market Supplyo Labor Example Have to be willing and able to bring a lawn mower to mow the lawn How much would you be willing to do it for to bring your own?- What if you didn’t have to bring your own?o Supply Curve The higher the wage, the more willing he is to work  Market demand is sum of all individual demand averaged out - Law of Supply o Other things equal, as price falls, the quantity supplied falls, and as the price rises the quantity supplied increases  Direct relationship. As price goes up, quantity supply goes up, as opposed to demand in which the relationship is inverseo Reasons Price acts as an incentive to producers At some level of production, costs will rise - Market Equilibriumo Equilibrium occurs where the demand curve and the supply curve intersect o Prices fluctuate to move the market toward equilibrium o The price where demand and supply curves intersect is known as the Equilibrium Priceo The quantity where the demand and supply curve intersect is known as the Equilibrium Quantityo Price on Y axis Quantity on X axis o Demand: as price goes down, demand goes up o Supply: as price goes down, willingness to sell goes down o Equilibrium price is where the two cross, in this case, three dollars per latte Markets fluctuate until they reach that “sweet spot” - Changes in Demand o Headline exampleso Changes in preferences and tastes shift the demand for the product  People become more willing and able to buy things if they believe that they will benefit greatly from them  Automobiles are normal goods- as peoples’ incomes fall, demand decreases, andvice versa o The reverse is true for inferior goods- An increase in peoples’ incomes decreases demand for the product. A decrease in income leads to greater consumption of these goods  Ex: Ramon Noodles, Generic Grocery Products, etc. o If the price of Chevy Vehicles decrease, the demand for Fords will decrease These products are Substitutes- You only need one or the other, not botho Coke vs Pepsio Nike vs Adidaso If the price of IPods decrease, the demand for music downloads will increase These products are Complements - hot dogs and buns- coffee and creamero Expectations of price and income also change demand  Price- If consumers expect the price will increase in the future- they will buy the product now Income- If consumers expect their income to increase in the future, they will purchase more now o Change in consumer tastes or preferences o Change in the number of buyerso Change in income: It depends- normal of inferior goodo Price of related goods It depends- complements or substitutes o Change in consumers’ expectations Future Prices Future Income o- Changes in Quantity Demandedo Change in demand is a shift in the demand curve: Caused by a change in “other things equal”  Caused by a change in something else, - Ex: Chevy goes up so ford goes down o Change in quantity demanded is a movement from one point to another point on a fixed demand curve Caused by a change in price  Reference to a single price - Ex: chevy goes up so their quantity demanded goes up. - Changes in Supply o Headline exercise “Fast food workers declare a greater wage”- Decrease in supplyo Ex: McDonalds: wage goes up, supply goes down (can’t afford dollar menus)o A change in the cost of production  A change in resource prices A change in technology o Cure shift to the left if supply decreaseso Change in wage affects supply curve more than a demand curve because the buyer doesn’t care how much they make, the seller doeso “Microsoft and Apple decide to merge Supply decreases (mergers reduce the amount of sellers, which decreases the supply) Again, supply curve shift to the left- Price increases, quantity decreases - The less sellers, the more expensive, supply is lower o “Due to concussion issues, football is becoming less popular and the price of football decreases” Increase of soccer balls. - Soccer price falls, equilibrium quantity increase  The price of related goods matters. Footballs and soccer balls are substitutes in production No one wants footballs anymore, they switch to soccer balls, soccer ball sales go up, and the price goes up. o Changes in supply and in equilibrium When supply curve shifts to the right, the sellers are more happy- Get to pay their workers left - Drop in equilibrium price, increase in equilibrium quantity.  When supply shifts to the left, the sellers are less happy - Have to pay workers moreo Complements: produce more of one, produce more of the othero Substitutes: produce one or the other- Changes in Supplyo A change to the cost of production A change in resource prices  A change in technologyo A change in the number of sellero A change in taxes and subsidieso A change in the price of related goodso A change in producer expectations- Changes in Quantity Suppliedo Change in supply is a shift in the supply curve  At all price levels sellers are selling more/less