 Demand: the amount of a good or service that consumers are able and

willing to buy at various possible prices during a specified time period

 Supply: the amount of a good or service that producers are able and
willing to sell at various prices during a specified time period
 A market represents actions between buyers and sellers.
Law of Demand
 Demand is created only when the customer is both willing and able to buy
the product.
 The law of demand states:
 As price goes up, quantity demanded goes down.
 As price goes down, quantity demanded goes up.
 Real Income Effect
 People are limited by their income as to what they can purchase.
 Real income effect forces people to make trade-offs.
 Substitution Effect
 People can replace one product with another if it satisfies the same
need.
 Diminishing Marginal Utility
 People will purchase additional items until the satisfaction from the
last unit is equal to the price.
 The lessening of this satisfaction with each additional purchase is
called diminishing marginal utility.
 Utility: the ability of any good or service to satisfy consumer wants
Quantity Demanded vs. Demand
 A change in quantity demanded is caused by a change in the price of a good.
 If something other than price causes demand to increase or decrease, this is
known as a change in demand and shifts the demand curve.
Determinants of Demand
1- Population
2- Income
3- Taste and preferences
4- Substitutes
5- Complementary goods
The Law of Supply
 Supply is the willingness and ability to provide goods to the consumers.
 The Law of Supply states:
 As the price rises for a good the quantity supplied generally rises.
 As the price falls, the quantity supplied also falls.
 A direct relationship exists between price and quantity supplied.
 A change in quantity supplied is caused by a change in price.
 Something other than price can cause a change in supply as a whole to
increase or decrease.
Determinants of Supply
1- Price of inputs
2- Number of firms in the industry
3- Taxes
4- Technology
Equilibrium Price: the price at which the amount producers are willing to supply is
equal to the amount consumers are willing to buy
 Types of Signals:
 Shortages
 Occurs when the quantity demanded (at equilibrium price) is
greater than the quantity supplied.
 Surpluses
 Occurs when the quantity supplied (at equilibrium price) is
grater than quantity demanded.
Market Structure: the amount of Competition Company faces
1- Perfect competitions
Characteristics
a- Large market
b- Identical product
c- Easy entry and exit the market
d- Independence of buyers and sellers
e- Easily obtain information

2- Monopoly
A competition by which one seller control the supply of goods and service
Characteristics
a- Single seller
b- No substitute
c- Monopolist control the price
d- Protected by entry barrier

3- Oligopoly
Exist when an industry dominated by few supplier that have some control
over price
Characteristics
a- Few sellers
b- Capital cost is high
c- product differentiation
d- non price competition
e- interdependence ( cartel )

4- Monopolistic
Characteristics
a- Number of sellers
b- Relatively easy entry
c- Differentiated product
d- Non price competition
e- Small control over price