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Supply and Demand. The Market Forces of Supply and Demand uSupply and demand are the forces that make market economies work. uMicroeconomics is basically.

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Presentation on theme: "Supply and Demand. The Market Forces of Supply and Demand uSupply and demand are the forces that make market economies work. uMicroeconomics is basically."— Presentation transcript:

1 Supply and Demand

2 The Market Forces of Supply and Demand uSupply and demand are the forces that make market economies work. uMicroeconomics is basically about supply, demand, and market equilibrium.

3 Teach a parrot to say “supply and demand” and you have an economist

4 Markets uA market is a group of buyers and sellers of a particular good or service. uThe terms supply and demand refer to the behavior of people... as they interact with one another in markets.

5 Markets u Buyers determine demand. u Sellers determine supply.

6 Demand Quantity demanded is the amount of a good that buyers are willing and able to purchase.

7 Law of Demand The law of demand states that there is an inverse relationship between price and quantity demanded.

8 Demand Schedule The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded.

9 The demand curve slopes downward because, ceteris paribus, lower prices imply a greater quantity demanded! An individual’s demand curve represents the marginal utility (additional benefit) received from each incremental unit of the good. The decreasing satisfaction gained from additional units of a good consumed in a given period is call the law of diminishing marginal utility

10 Diminishing marginal utility explains the inverse relationship between prices and the quantity demanded in the law of demand …demand

11 Mr. Letsos’s Demand Schedule

12 Mr. Letsos’s Demand Curve $3.00 2.50 2.00 1.50 1.00 0.50 24681012 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0

13 WHOA! YES PRICE WILL ALWAYS GO VERTICAL (Y-AXIS) AND QUANTITY WILL GO HORIZONTAL (X-AXIS)

14 Mr. Tyllick’s Demand Schedule

15 Mr. Tyllick’s Demand Curve $3.00 2.50 2.00 1.50 1.00 0.50 Price of Ice-Cream Cone Quantity of Ice-Cream Cones

16 Total Market Demand Curve $3.00 2.50 2.00 1.50 1.00 0.50 Price of Ice-Cream Cone Quantity of Ice-Cream Cones

17 Not only capitalism here folks But PC (perfect competition or pure competition) More to come on this, but for now: Many small firms Same product No entry/exit costs


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