The Market at Work: Supply and Demand
What Are the Fundamentals of Markets
● Market economy is what allocated among household and firms with little to no government
interference
○ Ex. producers earn a living by selling the products consumers want and consumers are
motivated by self interest and they decide how to use their money
● Invisible hand is what guides us into resources to their highest valued usage
Competivtie Market
● Competitive market is one where there are so many buyers and sellers that eacj has only a small
impact on the market price and output
● Example - at a farmers market if there are mutile venders that sell apples and one vendor runs out
of apples the quantity of apple through out the market would fluctuate sugnifigantly becuase there
are other people selling apples
Imperfect Market
● Imperfect Market is one where either the buyer or the seller can infunce teh market price
○ Example: A firm creating an expensive price but people justify it by the product being
worth the price
● Market power is a firms ability to influence the price of a good or service by exercising control
over its demand,supply, or both
○ Example: phexier has market power to change the price of drugs and if they make it more
expensive than the offbrnad verson with therefore become more expensive
● Monopoly is when a single company supplies the entire market for a particular good or service
○ Example: amazon, mcdonads, and johnson & johnson
What Determines Demand?
● Quantity demanded is the amount of a good or service that buyers are willing and able to
purchase at the current price.
○ Example: if i buy salmon at the price of $15 at one point and then it rises to $25 i would
likely buy something else if the price goes up
● Law of demand is a table that shows the relationship between the priceof a good and the quantity
demanded
○ Example:
The Demand Curve
● Demand schedule is a table that shows the relahsonship between the price of a good and the
quantity demanded
○ Example: everytime the price increase the fewer the demand is smaller
, ● Demand Curve is a graphof the relationship between the prices in the demand schedule and the
quantity demandefd at those prices
○
Market Demand
● Market demand is the sum of all the individual quantities demand bt each buyer in a market at
each price
○ Only a change in price can cause a movement along the demand curve
● Elastic demand curve is a straight line graph horizontal
○ (Negative economic Growth)A decrease in overall demand shift the demand curve to the
left
■ The price of a substitute good falls.
■ The price of a complementary good rises.
■ The good falls out of style.
■ There is a belief that the future price of the good will decline.
■ The number of buyers in the market falls.
■ Income falls (demand for a normal good).
■ Excise or sales taxes increase.
■ Subsidies to consumers decrease.
○ (Positive economic Growth) A increase in overall demand shift the demand curve to the
Fright
■ Income falls (demand for an inferior good).
■ The price of a substitute good rises.
■ The price of a complementary good falls.
■ The good is currently in style.
■ There is a belief that the future price of the good will rise.
■ The number of buyers in the market increases.
■ Excise or sales taxes decrease.
■ Subsidies to consumers increase.
○ Factors that shift the demand curve changes in buyers income, changes in tastes and
preferences, orice expectations, the number of buyers, taxes and subsides
● Factors that shift the demand curve righward of leftwar
○ Income
○ Taste and preferences
○ Price of substitute good nd a complementary good
○ Expectiaions of future prices
○ number of buyers
● Factors that shift the supply cirve leftward or rightward
○ Subsidies
○ Taxes tevhonogy
○ Natural disasters
○ govermnet restrictions
● Purchasing power is the value of your income expressed in terms of how much you can afford
Income rises (demand for an inferior good).
What Are the Fundamentals of Markets
● Market economy is what allocated among household and firms with little to no government
interference
○ Ex. producers earn a living by selling the products consumers want and consumers are
motivated by self interest and they decide how to use their money
● Invisible hand is what guides us into resources to their highest valued usage
Competivtie Market
● Competitive market is one where there are so many buyers and sellers that eacj has only a small
impact on the market price and output
● Example - at a farmers market if there are mutile venders that sell apples and one vendor runs out
of apples the quantity of apple through out the market would fluctuate sugnifigantly becuase there
are other people selling apples
Imperfect Market
● Imperfect Market is one where either the buyer or the seller can infunce teh market price
○ Example: A firm creating an expensive price but people justify it by the product being
worth the price
● Market power is a firms ability to influence the price of a good or service by exercising control
over its demand,supply, or both
○ Example: phexier has market power to change the price of drugs and if they make it more
expensive than the offbrnad verson with therefore become more expensive
● Monopoly is when a single company supplies the entire market for a particular good or service
○ Example: amazon, mcdonads, and johnson & johnson
What Determines Demand?
● Quantity demanded is the amount of a good or service that buyers are willing and able to
purchase at the current price.
○ Example: if i buy salmon at the price of $15 at one point and then it rises to $25 i would
likely buy something else if the price goes up
● Law of demand is a table that shows the relationship between the priceof a good and the quantity
demanded
○ Example:
The Demand Curve
● Demand schedule is a table that shows the relahsonship between the price of a good and the
quantity demanded
○ Example: everytime the price increase the fewer the demand is smaller
, ● Demand Curve is a graphof the relationship between the prices in the demand schedule and the
quantity demandefd at those prices
○
Market Demand
● Market demand is the sum of all the individual quantities demand bt each buyer in a market at
each price
○ Only a change in price can cause a movement along the demand curve
● Elastic demand curve is a straight line graph horizontal
○ (Negative economic Growth)A decrease in overall demand shift the demand curve to the
left
■ The price of a substitute good falls.
■ The price of a complementary good rises.
■ The good falls out of style.
■ There is a belief that the future price of the good will decline.
■ The number of buyers in the market falls.
■ Income falls (demand for a normal good).
■ Excise or sales taxes increase.
■ Subsidies to consumers decrease.
○ (Positive economic Growth) A increase in overall demand shift the demand curve to the
Fright
■ Income falls (demand for an inferior good).
■ The price of a substitute good rises.
■ The price of a complementary good falls.
■ The good is currently in style.
■ There is a belief that the future price of the good will rise.
■ The number of buyers in the market increases.
■ Excise or sales taxes decrease.
■ Subsidies to consumers increase.
○ Factors that shift the demand curve changes in buyers income, changes in tastes and
preferences, orice expectations, the number of buyers, taxes and subsides
● Factors that shift the demand curve righward of leftwar
○ Income
○ Taste and preferences
○ Price of substitute good nd a complementary good
○ Expectiaions of future prices
○ number of buyers
● Factors that shift the supply cirve leftward or rightward
○ Subsidies
○ Taxes tevhonogy
○ Natural disasters
○ govermnet restrictions
● Purchasing power is the value of your income expressed in terms of how much you can afford
Income rises (demand for an inferior good).
