MICROECONOMICS

PART 3

ANG ELI CA L AO
I NSTRUCTO R
UNDERSTANDING
INDIVIDUAL
MARKETS:
DEMAND AND
SUPPLY
MARKET
An institution or mechanism which brings together buyers ("demanders")
and sellers ("suppliers") of particular goods, services, or resources.

Markets can be:

Highly organized, such as the markets for many agricultural commodities. In these
markets, buyers and sellers meet at a specific time and place, where an auctioneer
helps set prices and arrange sales.
Less organized. For example, consider the market for ice cream in a particular town.
Buyers of ice cream do not meet together at any one time. The sellers of ice cream are
in different locations and offer somewhat different products
WHAT IS COMPETITION?
Competitive market to describe a market in which there are so many buyers
and so many sellers that each has a negligible impact on the market price.

Perfectly competitive
(1) the goods offered for sale are all exactly the same, and
(2) the buyers and sellers are so numerous that no single buyer or seller has
any influence over the market price.

Because buyers and sellers in perfectly competitive markets must accept

the price the market determines, they are said to be price takers.
MONOPOLY
Some markets have only one seller, and this seller sets the price.
Example :
DEMAND
A schedule or a curve showing the various amounts of a product consumers
are willing and able to purchase at each of a series of possible prices during
a specified period of time.

Shows the quantities of a product which will be purchased at various

possible prices, other things equal.

Demand is simply a statement of buyer's plans, or intentions, with respect to

the purchase of a product.
THE DEMAND CURVE: THE RELATIONSHIP
BETWEEN PRICE AND QUANTITY DEMANDED
The quantity demanded of any good is the amount of the good that buyers
are willing and able to purchase.

Law of demand claim that, other things equal, the quantity demanded of a
good falls when the price of the good rises.

Demand schedule a table that shows the relationship between the price of a
good and the quantity demanded.
The graph in Figure 1 uses the numbers from the table to illustrate the law of
demand. By convention, the price of ice cream is on the vertical axis, and the
quantity of ice cream demanded is on the horizontal axis. The downward-
sloping line relating price and quantity demanded is called the demand
curve.

Demand curve a graph of the relationship between the price of a good and
the quantity demanded

The demand curve in Figure 1 shows an individual’s demand for a product. To

analyze how markets work, we need to determine the market demand, the
sum of all the individual demands for a particular good or service.
FACTORS OF DEMAND CURVE
Factors that give rise to shifts in the demand curve.

Taste - A favorable change in consumer tastes or preferences for a product-

one which makes the product more desirable-means that more of it will be
demanded at each price.

Number of Buyers - An increase in number of buyers can increase the

number of demand. A decrease in the number of consumers decrease
demand.
FACTORS OF DEMAND CURVE
Factors that give rise to shifts in the demand curve.
Income - A lower income means that you have less to spend in total, so you
would have to spend less on some—and probably most—goods.
Prices of related goods - A change in the price of related goods may
increase or decrease the demand for a product, depending whether the good
is a substitute or complement.
Substitute - When two products are substitutes, the price of one and the
demand for the other move in the same direction.
Ex. Chicken and Beef
Complements - When two products are complements, the price of one good
and the demand for the other good move in opposite directions.
Ex. Ham and cheese, Movie and Popcorn, Cameras and Film
FACTORS OF DEMAND CURVE
Factors that give rise to shifts in the demand curve.
Expectations - Consumers expectations about the product prices, product
availability, and future income can shift demand.
Consumer expectations of higher future prices may prompt them to
buy now to "beat" anticipated price rises, thus increasing today's
demand.
Similarly, the expectations of rising incomes may induce consumers
to be freer in current spending. In contrast, the expectation of falling
prices or falling income will decrease current demand for products.
IN SUMMARY
An increase in demand-the decision by consumers to buy larger quantities of
a product at each possible price-can be caused by:
1. A favorable change in consumer taste
2. An increase in the number of buyers
3. Rising incomes if the product is a normal good
4. Falling incomes if the product is an inferior good
5. An increase in the price of a substitute good
6. A decrease in the price of a complementary good
7. Consumer expectations of higher future prices and incomes
CHANGE IN DEMAND
A shift of the entire curve to the right ( an increase in the demand) or to the
left (a decrease in demand).

CHANGE IN QUANTITY DEMANDED

Designates the movement from one point to another point-from one price-
quantity combination to another-on a fixed demand schedule or demand
curve.