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Demand

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    1. Demand/Supply & Market Adjustments Chapter 4

    2. The Classical Market Requirements for idealized free markets Perfectly competitive: many buyers & many sellers Spot markets Double auction Examples of markets that fit requirements do not fit requirements

    3. Theory of Demand Really microeconomics why study this? Demand based on consumers Ability to pay (income) Willingness to buy (tastes) Consumer perspective: What happens to demand when prices fall? Prices go up? Examples?

    4. A Sample Demand Curve

    6. Only price changes ? a change in the quantity demanded

    7. All other influences ? a change of demand

    8. Deriving a demand curve Share-pair exercise

    9. No fault question

    10. Theory of Supply Business perspective: The higher the market price, the greater the expected profit

    11. A Sample Supply Curve

    12. Price change ? change in the quantity supplied

    13. Anything else changes ? change of supply

    14. What might cause supply to shift? The main shifters Price of inputs [wage rates, oil, cost of capital] Technology [generally reduce costs] Other shifters Taxes and subsidies

    15. Theory of Market Adjustment

    16. Bringing the parts together: Market Prices & Equilibrium Markets consist of competition between: Buyers/buyers [shortage] Sellers/sellers [surplus] Buyers/sellers [greater competition when there are large numbers of each] Competition ? market clearing price Qn sellers want to sell = Qn demanders want to buy. Market clearing is often described as reaching an equilibrium.

    17. Market dynamics Surplus Excess supply: Qn S > Qn D Inventories build up Businesses motivated to cut prices Shortage Excess demand: Qn S < Qn D Inventories fall, waiting lists, back orders Businesses motivated to raise prices

    18. Interaction of Supply and Demand

    20. Macroeconomic Dynamics Sticky prices (adjust too slowly) Quantity more likely to be adjusted (businesses cut production) Volatile prices (swing too much) Speculation (may lead to a bubble bursting)

    21. No fault

    22. Graphs, Tables, Charts