Demand Supply Microeco.pptx by zothaniii

hbhbb hhh b jjnn

1. An introduction to microeconomics

2. Following to be covered: Producers and consumers in a perfectly competitive market Demand and Supply Curve Price and Quantity Determination Equilibrium Slides and shifts

3. Behavior of consumers What is perfectly competitive market? It is a market where there is an abundance of well-informed buyers and sellers. There are a large number of both Assumption that there are many sellers means that each seller holds a small fraction of the market thus there is a lot of competition Sellers must sell at the market price thus known as price takers thus they have no market power Same for the buyers There is no market power here Products are also all uniform no variations

4. The Market and the Economy What determines the price at which an input or output are traded? What determines the quantity of the input or output traded? We need to build a model of how markets work to explain how prices and quantities are determined

5. Deriving the market demand

6. We begin by deriving the demand curve for the individual consumer. We need to know how much the individual consumer demands of a product at each and every possible price. The consumer must be willing to pay the market price. To want a product and demand a product are not the same thing. Producers will only produce an output for consumers who are willing to pay the asking price.

7. Price determinant of demand First we look at the price of the product We assume that only price changes and all other variables stay the same The price of the product changes ceteris paribus

8. The Market Demand Curve The market demand curve is simply the horizontal sum of all individual consumers demands curves for the product. If we know how much each individual demands at each price we can calculate market demand at each price. Each consumer has a different demand curve To determine the market demand curve we add up the number of the goods per week each of our consumers demand at each price.

9. The individual producer’s supply curve We now derive the supply curve for the individual producer We want to know how much the producer supplies at each and every price The supply of a product exists if the producer is willing and able to sell the product as market price We assume the producer supplies a given quantity per time period at a given price There are always factors that influence the producer's supply

10. Price determinant of supply The first thing we looking at is price of the product. We are assuming that only price changes all else remains the same – ceteris paribus There is a positive relationship between price and quantity supplied which means as the price rises the quantity supplied falls. As price falls quantity falls.

11. The Market Supply Curve The horizontal summation of all individual producers supply curves for the product.

12. Market Equilibrium Now we have our market demand and supply curves it is possible for us to show price and quantity determination Consumers who are buyers and producers who are sellers interact in output markets and thus determine the market price and quantity. Market equilibrium is when the quantity that is produced is exactly the quantity consumers are willing to buy – supply is equal to demand Demand curve is negatively sloped and supply is positively sloped

13. Important Terms Equilibrium is a state of rest. There is no need for price or quantity to change. Disequilibrium is when the quantity supplied is not equal to the quantity demanded. Surplus is when the quantity supplied is greater than the q uantity demanded Shortage is when the quantity demanded is more than the quantity supplied

14. The Non-price Determinants of Demand and Supply Non price determinants of demand are: Income ( Normal Goods and Inferior Goods) Tastes or preferences Prices of other goods ( Substitutes and Complements) The size of the market Income and Substitution effects Non price determinants of supply are: An increase of supply A Decrease of supply Costs Technology Unexpected events The number of producers

15. Slide and Shifts Slides are movements along the supply or demand curves. They occur when a change in the price of a good, ceteris paribus, causes a change in the quantity supplied or demanded of that good Shifts are movements of the supply and demand curves. The change in a non price determinant of supply or demand , ceteris paribus, causes the supply pr demand curve to shift. More or less is supplied or demanded at each and every price.