MICROECONOMICS o of any good is the amount of the good that

buyers are willing and able to purchase.

UNDERSTANDING INDIVIDUAL MARKETS: DEMAND
 Law of demand
AND SUPPLY
o claim that, other things equal, the quantity
MARKET demanded of a good falls when the price of the
good rises
 An institution or mechanism which brings together buyers  Demand schedule
("demanders") and sellers ("suppliers") of particular o a table that shows the relationship between the
goods, services, or resources. price of a good and the quantity demanded
MARKETS CAN BE:

 Highly organized
o 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
o 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?
The graph in Figure 1 uses the numbers from the table to
 Competitive market illustrate the law of demand. By convention, the price of ice
o to describe a market in which there are so many cream is on the vertical axis, and the quantity of ice cream
buyers and so many sellers that each has a demanded is on the horizontal axis. The downwardsloping
negligible impact on the market price. line relating price and quantity demanded is called the
 Perfectly competitive demand curve.
(1) the goods offered for sale are all exactly the
same, and  Demand curve
(2) the buyers and sellers are so numerous that no o a graph of the relationship between the price of a
single buyer or seller has any influence over the good and the quantity demanded
market price. The demand curve in Figure 1 shows an individual’s demand
Because buyers and sellers in perfectly competitive for a product. To analyze how markets work, we need to
markets must accept the price the market determines, determine the
they are said to be price takers
 market demand
MONOPOLY o the sum of all the individual demands for a
particular good or service
 Some markets have only one seller, and this seller sets the
price.
 Example: SORECO II
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

  An increase in demand-the decision by consumers to buy
larger quantities of a product at each possible price-can be
caused by:
o A favorable change in consumer taste
o An increase in the number of buyers
o Rising incomes if the product is a normal good
o Falling incomes if the product is an inferior good
o An increase in the price of a substitute good
o A decrease in the price of a complementary good
o Consumer expectations of higher future prices
FACTORS OF DEMAND CURVE and incomes

Factors that give rise to shifts in the demand curve. CHANGE IN DEMAND

 Taste –  A shift of the entire curve to the right

o A favorable change in consumer tastes or o ( an increase in the demand) or to the left (a
preferences for a productone which makes the decrease in demand).
product more desirable-means that more of it
will be demanded at each price. CHANGE IN QUANTITY DEMANDED
 Number of Buyers –  Designates the movement from one point to another point
o An increase in number of buyers can increase the o from one pricequantity combination to another-
number of demand. A decrease in the number of on a fixed demand schedule or demand curve
consumers decrease demand.
 Income
o 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
o 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
 Expectations
o Consumers expectations about the product
prices, product availability, and future income
can shift demand.
o Consumer expectations of higher future prices
may prompt them to buy now to "beat"
anticipated price rises, thus increasing today's
demand.
o 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