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SUPPLY
MARKET
A
determine demand.
Sellers determine supply.
DEMAND
Demand
AN INDIVIDUAL BUYERS
DEMAND FOR CORN
Price per Bushel
$5
$4
$3
$2
$1
10
20
35
55
80
Quantity Demanded
LAW OF DEMAND
The Law of Demand: As the price of a good falls,
the quantity demanded of the good rises and as
the price of a good rises the quantity demanded
of the good falls, ceteris paribus.
The demand curve is downward sloping.
Explain the Law of demand
People
goods.
Law of diminishing marginal utility: the additional
satisfaction gained by consuming a good declines as
more unit of the good is consumed.
MARKET DEMAND
Price per
Quantity demanded
bushel
$5
$4
$3
$2
$1
Buyer 1
10
20
35
55
80
12
23
39
60
87
Buyer 2
8
17
26
39
54
Total quantity
Buyer 3
30
60
100
154
221
demanded
MARKET DEMAND
An individual demand curve represents the
relationship between price and quantity
demanded of a particular good for a single buyer.
Market demand refers to the sum of all
individual demands for a particular good.
Graphically, individual demand curves are
summed horizontally to obtain the market
demand curve.
curve.
Quantity demanded is the number of units of
a good that buyers are willing and able to
purchase at a particular price.
Quantity
DETERMINANTS OF DEMAND
income
The prices of related goods
Consumers tastes and preferences
Expectation of future prices
Number of buyers
INCOME
SUPPLY
Supply
AN INDIVIDUAL PRODUCERS
SUPPLY OF CORN
Price per bushel
$5
$4
$3
$2
$1
60
50
35
20
5
Quantity Supplied
LAW OF SUPPLY
The Law of Supply: As the price of a good rises,
the quantity supplied of the good rises and as the
price of a good falls, the quantity supplied of the
good falls, ceteris paribus.
The supply curve is upward sloping.
MARKET SUPPLY
An individual supply curve represents the
relationship between price and quantity supplied
of a particular good for a single seller.
Market supply refers to the sum of all individual
supplies for a particular good.
Graphically, the market supply curve is obtained
by adding up horizontally the supply curves of all
individual sellers.
curve.
Quantity supplied is the number of units of a
good that sellers are willing and able to
supply at a particular price.
Quantity
DETERMINANTS OF SUPPLY
prices
Technology
Prices of other goods
Expectations of future prices
Number of sellers
Taxes and subsidies
Government restrictions
DETERMINANTS OF SUPPLY
Resource prices
If
Technology
Advance
DETERMINANTS OF SUPPLY
Subsidies
Government restrictions
Government
MARKET EQUILIBRIUM
Market equilibrium refers to a situation in which
the price has reached the level where quantity
supplied equals quantity demanded.
Market equilibrium determines equilibrium price
and equilibrium quantity.
Equilibrium
Surpluses
When
Shortages
When
CHANGES IN MARKET
EQUILIBRIUM
in demand
Changes in supply
Complex cases: Changes in both supply and
demand