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Lecture Principles of microeconomics - Chapter 4: The market forces of supply and demand

This chapter introduces the theory of supply and demand. It considers how buyers and sellers behave and how they interact with one another. It shows how supply and demand determine prices in a market economy and how prices, in turn, allocate the economy’s scarce resources. | The Market Forces of Supply and Demand Chapter 4 Markets A market is a group of buyers and sellers of a particular good or service. The terms supply and demand refer to the behavior of people . . . as they interact with one another in markets. And Economics, especially Microeconomics is about how supply and demand interact in markets. 4 Market Types or Structures Competitive Markets Products are the same,price takers Monopoly Monopolistic Competition Oligopoly Demand Curve $3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 17 Use the cookie or snack example to illustrate individual and market demand. Why does the Demand Curve Slope Downward? Law of Demand Inverse relationship between price and quantity. Law of Diminishing Marginal Utility. Utility is the extra satisfaction that one receives from consuming a product. Marginal means extra. Diminishing means decreasing. Market Demand Market demand refers to the sum of all . | The Market Forces of Supply and Demand Chapter 4 Markets A market is a group of buyers and sellers of a particular good or service. The terms supply and demand refer to the behavior of people . . . as they interact with one another in markets. And Economics, especially Microeconomics is about how supply and demand interact in markets. 4 Market Types or Structures Competitive Markets Products are the same,price takers Monopoly Monopolistic Competition Oligopoly Demand Curve $3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 17 Use the cookie or snack example to illustrate individual and market demand. Why does the Demand Curve Slope Downward? Law of Demand Inverse relationship between price and quantity. Law of Diminishing Marginal Utility. Utility is the extra satisfaction that one receives from consuming a product. Marginal means extra. Diminishing means decreasing. Market Demand Market demand refers to the sum of all individual demands for a particular good or service. Graphically, individual demand curves are summed horizontally to obtain the market demand curve. Use the market example on pages 60-61. Use Famous Amos cookies. Ceteris Paribus Ceteris paribus is a Latin phrase that means all variables other than the ones being studied are assumed to be constant. Literally, ceteris paribus means “other things being equal.” The demand curve slopes downward because, ceteris paribus, lower prices imply a greater quantity demanded! 18 Need to emphasize the point of holding all other factors constant. Two Simple Rules for Movements vs. Shifts Rule One When an independent variable changes and that variable does not appear on the graph, the curve on the graph will shift. Rule Two When an independent variable does appear on the graph, the curve on the graph will not shift, instead a movement along the existing curve will occur. Let’s apply these rules to the following cases of supply and demand! Change in .