Question

notes of market demand andn supply

Answer 1

Price Theory Lecture 2: Supply & Demand I. The Basic Notion of Supply & Demand Supply-and-demand is a model for understanding the determination of the price of quantity of a good sold on the market. The explanation works by looking at two different groups – buyers and sellers – and asking how they interact. II. Types of Competition The supply-and-demand model relies on a high degree of competition, meaning that there are enough buyers and sellers in the market for bidding to take place. Buyers bid against each other and thereby raise the price, while sellers bid against each other and thereby lower the price. The equilibrium is a point at which all the bidding has been done; nobody has an incentive to offer higher prices or accept lower prices. Perfect competition exists when there are so many buyers and sellers that no single buyer or seller can unilaterally affect the price on the market. Imperfect competition exists when a single buyer or seller has the power to influence the price on the market. The supply-and-demand model applies most accurately when there is perfect competition. This is an abstraction, because no market is actually perfectly competitive, but the supply-and-demand framework still provides a good approximation for what is happening much of the time. III. The Concept of Demand Used in the vernacular to mean almost any kind of wish or desire or need. But to an economist, demand refers to both willingness and ability Quantity demanded to pay. (Qd) is the total amount of a good that buyers would choose to purchase under given conditions. The given conditions include: • price of the good • income and wealth • prices of substitutes and complements • population • preferences (tastes) • expectations of future prices We refer to all of these things except the price of the good as determinants of demand . We could talk about the relationship between quantity demanded and any one of these things. But when we talk about a demand curve, we are focusing on the relationship between quantity demanded and price (while holding all the others fixed).