This document discusses supply and demand in market economics. It defines key terms like markets, competitive markets, and different types of competition. It explains the law of demand and how demand is represented by a demand schedule and demand curve. The determinants of demand are outlined, including price, income, prices of related goods, tastes, and expectations. It distinguishes between a change in quantity demanded along the demand curve, caused by price changes, versus a shift in the demand curve caused by changes in non-price determinants. The effects of income changes on normal versus inferior goods are illustrated. The document also covers substitutes and complements.
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Download as PPT, PDF, TXT or read online from Scribd
This document discusses supply and demand in market economics. It defines key terms like markets, competitive markets, and different types of competition. It explains the law of demand and how demand is represented by a demand schedule and demand curve. The determinants of demand are outlined, including price, income, prices of related goods, tastes, and expectations. It distinguishes between a change in quantity demanded along the demand curve, caused by price changes, versus a shift in the demand curve caused by changes in non-price determinants. The effects of income changes on normal versus inferior goods are illustrated. The document also covers substitutes and complements.
Original Description:
Software Engineering Economics.
Lecture on supply and demand.
This document discusses supply and demand in market economics. It defines key terms like markets, competitive markets, and different types of competition. It explains the law of demand and how demand is represented by a demand schedule and demand curve. The determinants of demand are outlined, including price, income, prices of related goods, tastes, and expectations. It distinguishes between a change in quantity demanded along the demand curve, caused by price changes, versus a shift in the demand curve caused by changes in non-price determinants. The effects of income changes on normal versus inferior goods are illustrated. The document also covers substitutes and complements.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
This document discusses supply and demand in market economics. It defines key terms like markets, competitive markets, and different types of competition. It explains the law of demand and how demand is represented by a demand schedule and demand curve. The determinants of demand are outlined, including price, income, prices of related goods, tastes, and expectations. It distinguishes between a change in quantity demanded along the demand curve, caused by price changes, versus a shift in the demand curve caused by changes in non-price determinants. The effects of income changes on normal versus inferior goods are illustrated. The document also covers substitutes and complements.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
Download as ppt, pdf, or txt
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Software Engineering Economics
SE 361
Lecture-12 By Muhammad Waseem
The Market Forces of Supply and Demand
Supply
and demand are the two words that economists use most often. Supply and demand are the forces that make market economies work. Modern microeconomics is about supply, demand, and market Stability .
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.
Markets
Buyers determine demand.
Sellers determine supply.
Market Type: A Competitive Market
A competitive market is a market. . . with many buyers and sellers. that is not controlled by any one person.
in which a narrow range of prices are established that buyers and sellers act upon.
Competition: Perfect and Otherwise
Perfect Competition Products
are the same Many buyers and sellers so that each has no influence over price Buyers and Sellers are price takers
Competition: Perfect and Otherwise
Monopoly One
seller, and seller controls price
Oligopoly Few
sellers Not always aggressive competition
Competition: Perfect and Otherwise
Monopolistic Many
Competition
sellers Slightly differentiated products Each seller may set price for its own product
Demand Quantity demanded is the amount of a good that buyers are willing and able to purchase.
Law of Demand The law of demand states that there is an inverse relationship between price and quantity demanded.
Demand Schedule The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded.
price Consumer income Prices of related goods Tastes Expectations
Demand Curve The demand curve is the downwardsloping line relating price to quantity demanded.
Demand Curve Price of Ice-Cream Cone
$3.00 2.50 2.00 1.50 1.00 0.50
Price $0.00 0.50 1.00 1.50 2.00 2.50 3.00
Quantity 12 10 8 6 4 2 0
0 1
2 3 4 5 6 7 8 9 10 11 12
Quantity of Ice-Cream Cones
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.
Determinants of Demand Market
price Consumer income Prices of related goods Tastes Expectations
Change in Quantity Demanded versus Change in Demand
Change in Quantity Demanded Movement
along the demand curve. Caused by a change in the price of the product.
Price of Cigarettes per Pack
Changes in Quantity Demanded
C A tax that raises the price of cigarettes results in a movement along the demand curve.
$4.00
2.00
D1 0
12
20
Number of Cigarettes Smoked per Day
Change in Quantity Demanded versus Change in Demand
Change in Demand A
shift in the demand curve, either to the left or right. Caused by a change in a determinant other than the price.
Changes in Demand Price of Ice-Cream Cone
Increase in demand
Decrease in demand
D2 0
D3
D1 Quantity of Ice-Cream Cones
Consumer Income As
income increases the demand for a normal good will increase. As income increases the demand for an inferior/poor good will decrease.
Consumer Income Price of Ice-Cream Cone
Normal Good An increase in income... Increase in demand
$3.00 2.50 2.00 1.50 1.00 0.50
D1 0 1 2 3 4 5 6 7 8 9 10 11 12
D2 Quantity of Ice-Cream Cones
Consumer Income Price of Ice-Cream Cone
Inferior Good
$3.00 2.50 2.00 1.50 1.00 0.50 Decrease in demand
An increase in income...
D2 0 1
D1
2 3 4 5 6 7 8 9 10 11 12
Quantity of Ice-Cream Cones
Prices of Related Goods
Substitutes & Complements When
a fall in the price of one good reduces the demand for another good, the two goods are called substitutes. When a fall in the price of one good increases the demand for another good, the two goods are called complements.
Change in Quantity Demanded versus Change in Demand
Variables that Affect Quantity Demanded
A Change in This Variable . . .
Represents a movement along the demand curve Shifts the demand curve
