INDIVIDUAL MARKETS: DEMAND and SUPPLY

Markets Defined
A market is an institution or mechanism that brings together buyers and sellers of particular goods, services, or resources.
or simply,

A market is a place, state, or condition where buyers and sellers transact goods and services at agreed upon prices.

The Theory of Demand

Demand represents the amount of goods and services consumers are willing and able to buy at alternative prices at a given time.

Quantity Demanded (Qd) represents the particular amount of goods and services consumers bought at a given price.

The Theory of Demand

The Law of Demand states that quantity demanded is inversely proportional to the price of the good, ceteris paribus i.e. as price falls, quantity demanded rises and as price rises, quantity demanded falls. The Latin phrase ceteris paribus literally means all else equal or all else remained constant.

The Theory of Demand

The Demand Curve, being the graphical representation of the Law of Demand, is a curve that shows the various amounts of a good that consumers are willing and able to buy at alternative prices.

The Demand Schedule is the tabular representation of the relationship between quantity demanded and price.

The Theory of Demand

The Demand Equation is the mathematical representation of the Law of Demand: Qd = a bP
Qd quantity demanded
P price of the good a demand intercept i.e. a = Qd iff P = 0 b slope of the demand curve

The Theory of Demand

Factors affecting demand:

1.Price of the good (P)

2.Price of related goods (PR)

3.Consumer Income (Y)

4.Population (Pop)

5.Consumer taste and preference (TP)

6.Price expectations (Pe)

The Theory of Demand

A change in the price of the good results to a change in Qd reflected by a movement along the demand curve. A change in any of the demand shifters (factors other than the price of the good) results to a change in demand reflected by a shift of the demand curve.

The Theory of Supply

Supply represents the amount of goods and services producers are willing and able to sell at alternative prices at a given time.
Quantity Supplied (Qs) represents the particular amount of goods and services producers sold at a given price.

The Theory of Supply

The Law of Supply states that quantity supplied is directly proportional to the price of the good, ceteris paribus i.e. as price falls, quantity supplied also falls and as price rises, quantity supplied also rises.

The Theory of Supply

The Supply Curve, being the graphical representation of the Law of Supply, is a curve that shows the various amounts of a good that producers are willing and able to sell at alternative prices. The Supply Schedule is the tabular representation of the relationship between quantity supplied and price.

The Theory of Supply

The Supply Equation is the mathematical representation of the Law of Supply: Qs = c + dP Qs quantity supplied P price of the good c supply intercept i.e c = Qs iff P = 0 d slope of the supply curve

The Theory of Supply

Factors affecting supply: 1.Price of the good 2.Resource prices or production cost 3.Number of sellers 4.Technology 5.Price expectations 6.Taxes and Subsidies 7.Particular factors

The Theory of Supply

A change in the price of the good results to a change in Qs reflected by a movement along the supply curve. A change in any of the supply shifters (factors other than the price of the good) results to a change in supply reflected by a shift of the supply curve.