Economics

Markets

• Interaction between buyers and •

sellers Markets may be

• Local • National • International

• Price is discovered in the interactions

of buyers and sellers

LO1

3-1

Market Involve

• Demand • Supply • Price • Quantity

LO1

3-2

Demand

• A statement of a buyers

plan or intentions with respect to purchase of products Demand shows the quantities of a product that will be purchased at various possible prices

3-3

•

LO1

Law of Demand • Other things remaining the same when the prices of any commodity rises, Its demand contracts while the fall in the prices of any commodity results in the expansion of its demand. • Qd= f(p)

LO1

3-4

Law of Demand • Assumptions • Inverse or negative relationship between price and quantity demanded • Qd= f(p) • Q= a- bp • Where a and b are parameters while negative sign shows inverse relation

LO1

3-5

By assuming the following values of P we can find the values of Q

P 1 2 3 Q=16-2p Q=16-2(1)= 14 Q=16-2(2)= 12 Q=16-2(3)= 10

4

5

Q=16-2(4)= 8

Q=16-2(5)= 6

The Demand Curve

P

6

5

P Qd $5 10 4 20 3 35

Price (per bushel)

4

3

2

2 55

1 80

1

D

10 20 30 40 50 60 70 80

0

Q

Quantity Demanded (bushels per week)

LO1

3-7

Changes in Demand

P

6

Change in Demand

5

Price (per bushel)

4

Change in Quantity Demanded

3

2

D2 D1

16 18 Q

1

D3

0

2

4

6

8

10

12

14

Quantity Demanded (bushels per week)

LO1

3-8

Determinants of Demand

Determinants of Demand: Factors That Shift the Demand Curve Determinant

Change in buyers’ tastes

Examples

Physical fitness rises in popularity, increasing the demand for jogging shoes and bicycles; cell phone popularity rises, reducing the demand for land-line phones. A decline in the birthrate reduces the demand for children’s toys.

Change in the number of buyers

Change in income

A rise in incomes increases the demand for normal goods such as restaurant meals, sports tickets, and necklaces while reducing the demand for inferior goods such as cabbage, turnips, and...