econ 1 n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
ECON 1 PowerPoint Presentation
Download Presentation
ECON 1

Loading in 2 Seconds...

play fullscreen
1 / 29

ECON 1 - PowerPoint PPT Presentation


  • 100 Views
  • Uploaded on

ECON 1. The functioning of Markets The interaction of buyers and sellers (Chapter 4). ECONOMIC Form of Competition. Economic competition : We compete for goods by offering to trade $ dollars. Circular flow diagram : Shows the interaction of households and firms in two kinds of markets.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'ECON 1' - kert


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
econ 1
ECON 1

The functioning of Markets

The interaction of buyers and sellers

(Chapter 4)

economic form of competition
ECONOMIC Form of Competition
  • Economic competition: We compete for goods by offering to trade $ dollars.
  • Circular flow diagram: Shows the interaction of households and firms in two kinds of markets.
slide3

Circular Flow Diagram of the Exchange Economy

Goods &

Services

Goods &

Services

Product

Markets

$'s

$'s Revenue

HOUSEHOLD

FIRMS

$'s

$'s Income

Inputs

Resources

Resource

Markets

study of markets
Study of Markets
  • Markets are the interaction of buyers and sellers.
  • Some markets are local, some worldwide.
  • Focus on buyers and sellers separately: Separate graphs for each group.
  • Ceteris paribus: look at one thing at a time; All other things held equal.
marginal value
Marginal Value
  • Focusing on a buyer, we measure the personal marginal value of a good as the most $’s you are willing to give up to acquire an additional unit. (How much you are willing to trade)
  • Graph the marginal value as a height above each additional unit per time period.
marginal value declines
Marginal Value Declines
  • Plot the marginal value as a height above additional units.
  • As you have more of any good, the marginal value declines.
marginal value1
Marginal Value

MVx

$ 10 $ 9 $ 8 $ 7 $ 6 $ 5 $ 4 $ 3 $ 2 $ 1

Marginal Value

The height above each additional unit = the most you are willing to pay

Qtyx/T

1 2 3 4 5 6 7 8 9 10

how much are you willing to buy
How much are you willing to Buy?
  • By comparing the marginal value with the $ Price at which the good is available, we can read the quantity you are willing to buy at each $ price. (horizontal distance)
  • Demand: A schedule of the alternative quantities that an individual is willing and able to buy at alternative $ prices.
demand curve
Demand Curve

$Price x

$ 10 $ 9 $ 8$ 7 $ 6 $ 5 $ 4 $ 3 $ 2 $ 1

MVx = Demand X

Qtyx/T

1 2 3 4 5 6 7 8 9 10

demand for x
Demand for X

$ P x

$ 10 $ 9 $ 8 $ 7 $ 6 $ 5 $ 4 $ 3 $ 2 $ 1

Dx

Demand shows the amounts purchased at alternative prices(horizontal distances at each price)

Demand x

Dx

Qtyx /T

1 2 3 4 5 6 7 8 9 10

first law of demand
First Law of Demand
  • The higher the price of a good, the smaller the quantity demanded; the lower the price of a good, the greater the quantity demanded.
  • Demand is downward sloping.
  • A change in price leads to a change in quantity demanded = a movement along the function
change in price vs change in demand
Change in Price vs. Change in Demand
  • A change in price is a move on the demand schedule.
  • A change in demand is a shift of the function due to something else changing.
increase in demand
Increase in Demand

$ P x

$ 10 $ 9 $ 8 $ 7 $ 6 $ 5 $ 4 $ 3 $ 2 $ 1

Dx’

Increase in demand is a rightward shift (greater quantity demanded at each price.)

Dx

Dx’

Dx

Qtyx /T

1 2 3 4 5 6 7 8 9 10 11 12

determinants of demand
Determinants of Demand
  • What factors determine the position of demand ?
  • What changes in other factors will cause demand to increase (shift right) or decrease (shift left)?
determinants of demand shift factors
Determinants of Demand: (Shift Factors)
  • Taste & preference: how much you like the good. If T&P increase, demand increases. (Rightward shift).
  • Income: a change in income affects demand.
    • Normal good: increase in income increases demand. (Right Shift)
    • Inferior good: increase in income decreases demand. (Left Shift)
determinants of demand continued
Determinants of Demand, Continued
  • Price of other goods:
    • Substitutes: most other goods are substitutes; An increase in the price of a substitute increases demand (rightward shift).
    • Complements: Goods used together; an increase in the price of complements decreases demand (leftward shift).
determinants of demand continued1
Determinants of Demand, Continued
  • Future Price Expectations: an increase in the expected future price will increase demand today.
market demand
Market Demand
  • The market demand is the sum of the individual demands of the buyers.
  • An increase in the number of buyers will increase market demand.
market supply
Market Supply
  • Supply is a schedule of the alternative quantities which sellers are willing and able to sell at alternative prices.
  • Supply is generally a positive relationship: at higher prices the quantity supplied is larger.
supply curve
Supply Curve

$Price

$10

8

6

4

2

Supply

2 4 6 8 10 12 14 16 Qty x/ T

supply reflects marginal cost
Supply Reflects Marginal Cost

$ P x

$ 10 $ 9 $ 8 $ 7 $ 6 $ 5 $ 4 $ 3 $ 2 $ 1

The height reflects the marginal cost of producing an additional unit.

Qtyx /T

1 2 3 4 5 6 7 8 9 10 11 12

change in quantity vrs shift in supply
Change in Quantity Vrs Shift in Supply
  • If sellers can get a higher price, the increase in quantity supplied is a movement on the supply curve.
  • If some other factor changes, the supply curve will shift.
  • An increase in supply is a rightward shift.
  • A decrease in supply is a leftward shift.
determinants of supply shift factors
Determinants of Supply: (Shift Factors)
  • Price of inputs: an increase in price of inputs will decrease supply (leftward shift).
  • Change in technology: an increase in technology will increase supply (rightward shift).
  • Number of sellers: as more sellers enter a market the supply shifts rightward.
slide26

The Market

$Price

$ 4

3

2.50

2.00

1.50

1.00

.50

.25

Demand

Surplus at this $ Price

Supply

100 200 300 400 500 600 700 800 900 1000 1100 Q x/ T

slide27

$Price

The Market

$ 4

3

2.50

2.00

1.50

1.00

.50

.25

Demand

Supply

Shortage at this $ Price

100 200 300 400 500 600 700 800 900 1000 1100 Q x/ T

slide28

$Price

Market Equilibrium

Dx = Sx at Pe

4

3

2.50

2.00

1.50

Pe 1.00

.50

.25

Demand

Supply

100 200 300 400 500 600 700 800 900 1000 1100 Q x/ T

Qe

market demand supply
Market: Demand & Supply

$ P x

Demand

$ 10 $ 9 $ 8 $ 7 $ 6 $ 5 $ 4 $ 3 $ 2 $ 1

Supply

At the equilibrium Price, the

Dx = Sx

Pe

Sx

Dx

Qtyx /T

1 2 3 4 5 6 7 8 9 10 11 12

Qe