1. (Market and Demand)
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2. Market
 A market is any arrangement that bring buyers
and sellers together.
 In a market economy people can trade what they
have (or have produced) for economic resources or
goods they would like to have. Places, institutions,
or mechanisms at or through which these trades
take palace are called markets.
 Money as a medium of exchange, standard of
value, and store of vale facilitates trade.

3. Market (Supply and Demand)
 Supply and demand are the forces that make
market economies work.
 Modern microeconomics is about
supply, demand, and market equilibrium.
 The terms supply and demand refer to the
behavior of people . . . as they interact with one
another in markets.
 Buyers
determine
demand.
Sellers
determine
supply.

4. Input Markets and Output
Markets
 Output, or product,
markets are the markets
in which goods and
services are exchanged.
 Input markets are the
markets in which
resources—labor, capital,
and land—used to produce
products, are exchanged.
• Payments flow in the opposite
direction as the physical flow of
resources, goods, and services
(counterclockwise).

5. Input Markets
Input markets include:
 The labor market, in which households supply
work for wages to firms that demand labor.
 The capital market, in which households supply
their savings, for interest or for claims to future
profits, to firms that demand funds to buy capital
goods.
 The land market, in which households supply land
or other real property in exchange for rent.

6. Demand
 Behaviour of buyers
 Relationship between
◦ Quantity demanded of a good
◦ Price
◦ Holding other factors constant
Demand and its Determinants:
 A General Definition:
Demand is the quantity of a good or resource that
buyers (or demanders) are willing and able to buy
under a given set of conditions over a given period of
time.
 Conditions: price, income, taste, prices of related
goods, expected prices, number of buyers, etc.

7. Quantity Demanded (Qd)
 Quantity demanded is the amount (number of
units) of a product that a household would buy in
a given time period if it could buy all it wanted at
the current market price.
 For example, that 100,000 movie tickets are sold
each month in a particular town at a price of $8
per ticket. That quantity -100,000-is the quantity
of movie admissions demanded per month at a
price of $8. If the price were $12, we would
expect the quantity demanded to be less. If it
were $4, we would expect the quantity demanded
to be greater.

8. Law of Demand
 The law of demand states that there is an inverse
relationship between price and quantity demanded.
 In other words – All Other things unchanged, as
price rises, the quantity demanded decreases, and
as price falls, the quantity demanded increases; the
relationship between price and the quantity
demanded is negative.
If the price of a good
then the Qd
holding other things constant!!!

9. Demand Curve
 The demand curve is a graph
illustrating how much of a given
product a household would be
willing to buy at different prices.
$3.00
2.50
2.00
1.50
1.00
0.50
21 3 4 5 6 7 8 9 10 1211
Price of
Goods
Qd0
Price Quantity
$0.00 12
0.50 10
1.00 8
1.50 6
2.00 4
2.50 2
3.00 0

10. • Individual demand
• demand curve for 1 buyer
• Market demand**
• curve for all buyers
• add up individual Qd for each price
• A change in price, ceteris paribus, results in a change
in quantity demanded; that is a movement along the
curve not a change in demand.
• A change in demand (curve) results from changes in
factors other than price. Such changes cause shifts of
the demand curve.
Individual demand & Market demand
Changes in Demand versus Changes in Quantity
Demanded

11. Changes in Demand
 Increase in Demand
◦ Increase in Qd at Every Price.
◦ Demand Curve shifts to the right.
 Decrease in Demand
◦ Decrease in Qd at Every Price.
◦ Demand Curve shifts to left.
21 30
1.50
1.00
0.50
Price of
Goods
Qd
D’
D
21 30
1.50
1.00
0.50
Prices
Qd
D’
D

12. Factors affecting demand
 Income
◦ For normal goods,
 An increase in income will increase demand examples:
CDs, Eating out, etc.
 Prices of related goods
◦ Related goods
 Substitutes (Example:- Snapple , Coke)
 If price of Snapple rises,
 People switch to water
 Increase in demand for water.
 If price of Snapple falls,
 People switch from water to Snapple
 Decrease in demand for water
• Complements:- Goods consumed with water e.g. Pretzels
 If price of pretzels rises
 Eat fewer pretzels, so drink less water,
 Demand for water falls

13. The Impact of a Change in Income
• Higher income decreases the
demand for an inferior good
• Higher income increases the
demand for a normal good

14. The Impact of a Change in the Price of
Related Goods
• Price of hamburger rises
• Demand for complement good
(ketchup) shifts left
• Demand for substitute good (chicken)
shifts right
• Quantity of hamburger
demanded falls

15.  Buyer expectations
◦ Buyers can expect change in
 Future income
 Future prices
And act to change demand today.
◦ Expect price of water to rise next month,
 Buy a case today,
 Increase demand today.
 # of buyers (Size of Population, Demographics:-age, gender and Race)
◦ If there are more buyers
 Increase market demand for water
 could be due to more people overall and more people
who like water.
 Preferences
◦ change in our likes/dislikes
◦ change in technology

16. The End
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