The man represents the choice making behavior of demanders while supply represents the choices of suppliers. This chapter begins by looking closely at demand and supply. It combines these forces to see how prices and quantities are determined in the marketplace.
observing what happens, the quantity demanded and supplied. When the price changes, we always assume that nothing else changes. Sometimes we use the term ceteris Paramas, which means all else remains the same. For example, we observed that consumers will tend to buy more Cadillac cars as the price declines, but this assumes that the price of other luxury cars do not change. At the same time, the demand curve does not always represent consumers. For example, business owners demand labor. The demand curve dose always represent that group that is doing the demanding economist tried to explain the world in which we live. In this case, the free enterprise system of the American economy. We observe that as a price of something goes up. People tend to buy fewer units and as the price goes down, people tend to buy more units. This can only be represented by a downward sloping curve.
That is demand curves. Have a negative slope. A demand curve shows us the relationship between a change in price and a change in the quantity demanded for a good or service as depicted on a graph. This graph shows us that as the price of compact discs declines, consumers tend to purchase more units. Everything else being equal. As a price increases, consumers tend to buy fewer units. Demand schedules show the relationship between a change in price and a change in the quantity demanded SD picket and a table rather than a graph. Sometimes economists use graphs and other times they use tables to make illustrations. The advantage of a graph is that it is easier to see the bigger picture. The advantage from a table is that it can be more detailed. Sometimes we are interested in the behavior of the individual, but in macro economics we were concerned with the whole market.
Demand is the aggregation of all individual demand curves or a good or service. This is a demand schedule because it is illustrated on a table rather than a graph. Column two illustrates the demand schedule for Fred. Column three illustrates the demand schedule for Mary. Column four is the aggregation of columns two and three. If Mary and Fred were the only consumers in this market, total demand would be the market demand are compact discs. This graph shows us to relationship between a change in price and a change in the quantity for Fred is the picket in the demand schedule on the previous slide. This graph shows us the relationship between a change in price and it changed in the quantity for Mary as depicted in the previous the man schedule. This graph illustrates the aggregation of Fred and Mary's demand. The graph at the bottom is made from Samine horizontally.
The demand curves for Fred and the Mary. So far we have been observing the behavior of Fred and Mary as they react to a change in the price of compact discs when the price changes [inaudible] Barabis but what happens when we relax the everything else being equal assumption. When something changes other than price, then the whole curve will shift. When price changes, we are moving a long a stationary demand curve and we say that there is a change in the quantity demanded. However, if something changes other than price, then we say that there is a change in demand. This slide illustrates that when there is a change in the price that be good or service, a change in the quantity demanded resolves. Notice that we say that there is a change in the quantity demanded, not a change in demand. This graph illustrates that we are moving a long a stationary demand curve when the price changes.
Consequently, there was a change in the quantity demanded as depicted on the horizontal axis. An increase in the price of a good or service is illustrated by moving up along a stationary demand curve resulting in a decrease in the quantity demanded as depicted on the horizontal axis. A decrease in the price a good or service is illustrated by moving down a long a stationery demand curve resulting in an increase in the quantity demanded as depicted on the horizontal axis. This graph illustrates what happens when something changes other than the prize. Instead of moving a long a stationary demand curve, the whole curve ships, there is a change in demand. When something changes other than the price, we call it a non price determinant. Any change in a non price determinant results in a change and the whole demand curve, the curve shifts to the right or to the left.
What are some examples of non price determinants that can cause a change in demand, we can identify at least five things that can cause a shift in demand curves. When more consumers enter the market, there tends to be an increase in demand when the number of consumers and the market declines. Demand tends to decrease as consumers tastes and preferences change. Demand curves change. As consumers are real incomes change, they will buy more of some things and less of other things. As consumers, expectations change there demand for a certain goods and services [inaudible] change when the price of related good or services change, then the demand curve for the original good or service can change. Normal goods and services are things that consumers will buy more of as their incomes increase. For example, they will tend to purchase more new cars while buying fewer used cars in figure goods or good to consumers would buy less of as her incomes increase.
For example, they may buy more steak, but fewer hotdogs substitutes compete with one another in the marketplace. For example, you can decide to purchase a new car or a good used car. If the price of new cars increases, more consumers will tend to purchase used cars. If the price of new cars decline, consumers tend to purchase fewer used cars as they decide to buy more new cars. Complimentary goods are goods that are used, one with the other. For example, steak and steak sauce, cars and gas, computers, and the internet. When the price of a good changes, the demand curve for the complimentary good will shift. For example, if the price was stake increases and consumers buy less steak, they will tend to buy less steak sauce. If the price was stake decreases and consumers buy more steak, they will tend to buy more steak sauce.
Just as the demand curves represent people who are doing the demanding supply curves represent people who are doing the supplying where's with demand curves. There's an inverse relationship between price and quantity. With supply curves, there is a direct relationship between price and quantity. That is when the price increases. Suppliers will want to supply more and when the price decreases, suppliers will want to supply less. Supply curves have a positive slow. The supply curve does not always represent business. For example, people supply labor for business and it is business who demands labor. The supply curve does always represent that group that is doing the supplying supply, a character upward sloping that is they have a positive slope. This is because suppliers have more incentive to supply more units. As the market price increases, more money can be made at the higher prices. Then at the lower prices only at the higher price would be profitable for sellers to incur the higher opportunity cost associated with producing a larger quantity.
This graph illustrates the positive slope of a supply curve. At $5 suppliers are willing to supply 20 units, but at $20 suppliers are willing to supply 40 units. Notice that when there is a change in the price, there is a change in the quantity supplied as measured on the horizontal axis. This table shows the same information as on the previous slide, but because it is presented as a table, we call it a supply schedule rather than a supply curve. Tuesday's market demand is derived from the aggregation of demand curves. Market supply is the aggregation of all the individual supply curves in the market. This table shows that the market supply for compact discs is the summation or the aggregation of the supply curves for these two types of compact discs. This is the supply curve for super sound compact discs. This is supply curve for high vibe compact discs.
This is the market supply for compact discs. It is the aggregation of the supply curves for super sound and high vibe compact discs. Remember when the price changes for a good or service, there is a change in the quantity demanded as measured on a horizontal axis, but when something changes other than price, then there is a change in the whole supply occur. This graph illustrates a change in the quantity supplied as the price changes. This graph illustrates a change in the quantity supplied as the price changes. Once we relax the everything else being equal assumption, then as things change other than price, the whole supply curve ships. This graph illustrates a chains and supply as something changed other then the price we call those things that can change other than the price non price determinants. When some non price determinant changes, the supplier curve ships, we recognize six things taking effect, a change in supply curves. The more suppliers there are in the market, there's a tendency for supply to increase and vice versa.
A change in technology can lead to an increase in supply for some things and a decrease in supply for other things. When resource prices decline, there's a tendency for supply. The increase as it becomes less expensive to supply and vice versa. Favorable tax policies or subsidies from the government can affect a change in supply curves. Just as with demand, a change in people's expectations can cause a change in supply. When the price of related goods and services change the supply curve of the first [inaudible] can change. The market is a place where buyers and sellers have some good or services meet. There are demanders and suppliers in any given market. The interaction of these two groups determines the market price.
The market price is an equilibrium price. It is the price toward a witch. The economy tens, the equilibrium price and the equilibrium quantity are at the point where the quantity demanded equals the quantity supplied. This graph answers the question, where is the equilibrium price? $60 is the price toward a witch. The economy tens. If the price is above $60 the quantity demanded is less, then the quantity supplied. As the price increases, suppliers want to supply more, whereas demanders demand less. The result in surplus leads to a decline in price. As suppliers try to get rid of the surplus. As the price declines below $60 the quantity demanded is greater than the quantity supplied. As a price declines, demanders want more [inaudible] suppliers desire to supply fewer units. The resultant shortage leads to an increase in the market price. There is not enough for everyone who wants at the going price as people bid against one another in the market. Only the highest bidders. Yep. The previous graph illustrates how the price system operates in a free market system as demand and supply curve shift. Over time, the market price fluctuates up and down. The concepts that you learned in this chapter form the basis of your understanding of a free market system. The concepts of demand supply, the factors which can lead to a shift in demand and supply curves, and the interaction of demand and supply form the foundation of our free enterprise system.