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AN INTRODUCTION TO MICROECONOMICS

AN INTRODUCTION TO MICROECONOMICS. Dr. Mohammed Migdad. Supply and Demand In the Market. CHAPTER 2. Chapter 2 content :. 2.1 Introduction 2.2 What Is the Market? 2.3 Consumer Demand 2.4 Firms Supply 2.5 Equilibrium between Supply and Demand 2.6 Price of Goods and Price Theory

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AN INTRODUCTION TO MICROECONOMICS

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  1. AN INTRODUCTION TOMICROECONOMICS Dr. Mohammed Migdad

  2. Supply and DemandIn the Market CHAPTER 2

  3. Chapter 2 content: • 2.1 Introduction • 2.2 What Is the Market? • 2.3 Consumer Demand • 2.4 Firms Supply • 2.5 Equilibrium between Supply and Demand • 2.6 Price of Goods and Price Theory • 2.7 Role of Governments in Economics • 2.8 Effects of Supply and Demand Change on Market Equilibrium

  4. 2.1 Introduction • careful study of the market will help in a good forecasting under the random movement of supply and demand • You will understand how the demand and supply work and derive changes in prices of commodities.

  5. 2.2 What Is the Market? A group of sellers and buyers desiring exchange of products or services. A market economy has at its heart the actions of buyers and sellers who exchange goods and services with one another.

  6. Market definition • A market is the institution through which buyers and sellers interact and engage in exchange. • A market economy has at its heart the actions of buyers and sellers who exchange goods and services with one another.

  7. A. What Is a Market? • There is no higher authority that directs the behavior of these economic agents; rather, it is the invisible handof the marketplace that allocates final goods and services, as well as factors of production.

  8. Markets • Buyers and sellers receive signals from one another in the form of prices. If buyers want to buy more of a good, prices rise and sellers respond by supplying more to the marketplace.

  9. Markets • If buyers want to buy less of a good, prices fall and sellers respond by supplying less to the marketplace.

  10. Markets • Market equilibrium occurs when the price is such that the quantity that buyers are interested in purchasing is equal to the quantity that sellers are interested in supplying to the market.

  11. Markets • The market mechanism allows an economy to simultaneously solve the three economic problems of what, how, and for whom.

  12. 2.2.1How the Market Works • Buyers and sellers receive signals from in the form of prices • Market equilibrium occurs when the price is such that the quantity that buyers are interested in purchasing is equal to the quantity that sellers are interested in supplying to the market.

  13. 2.2.2.The Economic Systems • Economic systems are the basic arrangements made by societies to solve the economic problem. They are of four systems as follows: 1- Islamic economy 2- Laissez-faire economies (Free Market System) 3- Command economies 4- Mixed systems

  14. Islamic Economy • Some people think that Islam has no economic system of its own • Islamic Economics is as Old as Islam Itself

  15. Islamic Economy • Islamiceconomics is accordance withIslamic law. • Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not;

  16. Example • i.e. it can refer to the creation of an Islamic economic system, or to simply following Islamic law in regards to spending, saving, investing, giving, etc. where the state does not follow Islamic law.

  17. Definition of Islamic economics • The Islamic economics is both a science and an art which deals with the daily routine of a Muslim's economic life. • i.e. how he earns his income and how he spends it. It is a science in the sense that it involves many scientific methods in the production of material goods, their distribution and consumption.

  18. Principles • The Islamic economic system is directly guided by Allah Almighty Himself. • all important aspects of the Islamic economic system and the applicable norms are thoroughly discussed in the Holy Quran

  19. Principles • Allah created all needed provisions so that they may consume them and may satisfy their wants

  20. Other principles • All wealth belongs to Allah (SWT( • The Muslims are the custodians and trustees of the wealth. • Hoarding the wealth is forbidden. • Circulating the wealth is obligatory

  21. The free market system • In a laissez-faire economy,individuals and firms pursue their own self-interests without any central direction or regulation. • The central institution of a laissez-faire economy is the free-market system. • A market is the institution through which buyers and sellers interact and engage in exchange.

  22. Consumer sovereignty • Consumer sovereignty is the idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase).

  23. Free enterprise • Free enterprise: under a free market system, individual producers must figure out how to plan, organize, and coordinate the production of products and services.

  24. distribution of output • In a laissez-faire economy, the distribution of output is also determined in a decentralized way. The amount that any one household gets depends on its income and wealth.

  25. Free System • The basic coordinating mechanism in a free market system is price. Price is the amount that a product sells for per unit. It reflects what society is willing to pay.

  26. Command economies • In a command economy, a central government either directly or indirectly sets output targets, incomes, and prices. • And the government determine what to produce and how much and How and for Whom to produce.

  27. goals of government in mixed economy • Minimize market inefficiencies • Provide public goods • Redistribute income • Stabilize the macro economy: • Promote low levels of unemployment • Promote low levels of inflation

  28. 2.3 Consumer Demand • In economics, demand is the desire to own anything with an ability and willingness to pay • The effective demand is the demand which combines between ability and willingness to purchase in a particular period of time.

  29. Major Groups of Expenditures in Gaza 2011, 2012

  30. The Relationship between Price and Quantity Demanded

  31. The 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.

  32. Demand Curve

  33. From Household Demand to Market Demand

  34. 2.3.1 Determinants of Demand The main factors that cause the change in demand and affecting the demand curve to shift to the right or to the left are as following: 1- Consumer Income 2- Population 3- Expectation of Future 4- Price of Related Goods 5- Tastes and Preferences

  35. The Difference between the Shift in Demand and the Change in Quantity Demanded

  36. Differences between the Change in Demand and the Change in Quantity Demanded • First: Change in Demand It results from the change in factors other than the price of a product itself. This is what we call determinants of demand.

  37. Differences between the Change in Demand and the Change in Quantity Demanded • Second: Change in Quantity DemandedIt results from changes in the prices of the product itself with other factors held constant.

  38. 2.4 Firms Supply Supply schedule is a table that clarifies different quantities suppliers desire and are able to supply to be sold facing a particular price during a given period of time, other things held constant

  39. 2.4.1 Supply Schedule

  40. 2.4.2 The Supply Curve

  41. 2.4.2 The Supply Curve There are some other terms which refer to supply such as: • Supply Law. • Supply Function. • Supply Equation. • Supply Model.

  42. 2.4.3 Supply DeterminantsShift in Supply Curve

  43. 2.4.4 The Main Factors that Cause the Change in Supply and Affect the Supply Curve to Shift to the Right or to the Left • Technology Changes • Price of Factors of Production (FoP) • Number of Sellers • Sellers' Expectations • Tax or Subsidy • Price of Related Goods Produced

  44. 2.4.5 Difference between the Change in Supply and the Change in Quantity Supplied • Change in Supply Change in supply results from a change in any of the six supply determinants (mentioned before) in addition to the change in price

  45. Shift in Supply Curve

  46. 2.4.5 Difference between the Change in Supply and the Change in Quantity Supplied 2. Change in Quantity Supplied Such change results from the change in the price of the good itself with other factors held constant.

  47. Change in Quantity Supplied

  48. 2.5 Equilibrium between Supply and Demand Equilibrium is a condition in which economic forces are balanced. These economic forces, supply and demand, will be unchanged from their equilibrium values in the absence of external influences Simply, equilibrium is the condition where the quantity supplied and demanded meet

  49. Market Equilibrium • Marketequilibrium is the condition that exists when quantity supplied and quantity demanded are equal. • At equilibrium, there is no tendency for the market price to change.

  50. An Example of the Demand and Supply Curve and Their Equilibrium Points

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