Market

a place where buyers and sellers meet for the purpose of buying
and selling.
Market Forces
Demand and Supply

Purpose of Market Forces

When market forces come together determine the equilibrium price/

quantity of good/service

Demand
desire and willingness to purchase a good/service in a
given time period

Demand influences consumers to maximize their satisfaction given

their income.

Effective Demand
Desire and willingness of a consumer to purchase a good/service
backed by the ability to purchase it.

Quantity Demand
The desire/willingness of consumers to purchase a good/service at
various price levels in a given time period. Changes in quantity
demanded is influenced by the changes in price of the good/service
only.

• The diagram above refers to the quantity of a particular good/

service demanded at each given price level.
• The demand curve is downward sloping to reflect the inverse
relationship between the price of the good and the quantity
demanded.

Example:
In the diagram above, when the price increased from $10 to $13,
quantity demanded decreased from 28 units to 18 units. Conversely
when the price decreased from $10- $5 the quantity demanded by
the consumer increased fro 25- 30 units.

DIAGRAM SHOWING MADISON S DEMAND CURVE FOR

POTATO PIE

In the diagram above, as the price of potato pie increased from $7-
$10, Madison’s quantity demanded for potato pie decreased from 30
units to 9 units.

• Market Demand Curve is a horizontal summation of all

individual demand curves.
• In the diagram above, the market demand curve for chocolate is
found by summing Abia and Marita’s individual demand curves
for chocolate assuming there are only two individuals in the
market for chocolate.
• The market demand for chocolate at the price of $20 is 11 (3+8)
while the market demand at $5 is 22 (7+15).

MOVEMENTS ALONG THE

DEMAND CURVE

- The diagram above displays movement along the ‘s demand curve for
good X. When the price increase from $7- $10, there was an
upward movement along the demand curve from point A to B. This is
due to the decrease in quantity demanded for good X from 9- 5 units.
This is a contraction in demand for good X.
- Conversely a decrease in price of good X from $7 to $3 resulted in
a downward movement along the demand curve from point A-C due to
an increase in quantity demanded from 9-13 units. This is an
extension in demand for good X

• Movements are caused by changes in PRICE of the good only

(referred to as changes in quantity demanded.

• An increase in the price of the good will cause a decrease in

quantity demanded shown by an UPWARD movement along the
demand curve. This is termed a CONTRACTION IN DEMAND.

• A decrease in the price of a good will cause an increase in the

quantity demanded shown by a DOWNWARD movement along
the demand curve. This is termed EXTENSION IN DEMAND.

SHIFTS OF THE DEMAND

CURVE
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