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Week 2 - 08.10.

2019 - Demand,
Supply and Equilibrium
Demand and Supply

Market

Place where buyers and sellers exchange goods

Interaction

Quantity of goods produced and consumed

Price of which theses goods are sold

Behaviors

Buyers - determined by demand

Sellers - determined by supply

Demand

Definition

Quantity that buyers would wish to purchase at any price at any time

Distinction between demand and quantity demanded

Quantity demanded is only relevant with price

Law of demand

Inverse relationship between price and quantity buyers are willing to


purchase

Demand curve

Reflects the buyers willingness to pay

Factors affecting demand

A buyer's disposable income

Preferences

Prices of related goods and services

Week 2 - 08.10.2019 - Demand, Supply and Equilibrium 1


Number of buyers in the market

Expectations about changes in prices

Tastes & Market Response

1996

Consumers became reluctant to consume beef

Price & production lowered

Supply

Definition

Quantity that suppliers would provide at any cost and time

Distinction between supply and quantity supplied

Supply is only relevant with price

Law of supply

Direct relationship between price of a good and quantity

Supply curve

Factors

Technology

Input prices

Taxes and subsidies

Number of sellers

Government regulations

Producer expectations

Markets in Action

Free markets allow prices to be determined by supply and demand

E.g Market for sugar in Uruguay - effect of high price floor

The government sets a higher price floor than the equilibrium

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E.g Market for loans - effect of a low price ceiling

Banks lend money and charge an interest rate (i - the price)

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