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1、Copyright 2014 McGraw Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill Education Chapter 3 Markets 3 2 What will you learn in this chapter What the characteristics of a competitive market are How to construct a demand curve How to di
2、stinguish a shift in demand versus a movement along the demand curve How to construct a supply curve How to distinguish a shift in supply versus a movement along the supply curve How demand and supply interact to bring markets to equilibrium How changes in supply and demand influence equilibrium pri
3、ce and quantity 3 3 Markets A market refers to the buyers and sellers who trade a particular good or service Markets can be located locally globally or even virtually One special class of markets is the competitive market Four characteristics of perfectly competitive markets In this chapter markets
4、are assumed to be perfectly competitive Standardized goodNo transaction costs Full information Participants are price takers 3 4 Demand As a group consumers determine the demand for a product The quantity demanded is the amount of a particular good or service that buyers are willing and able to purc
5、hase at a given price The law of demand states that the lower the price the higher the quantity demanded all other things equal 3 5 Cell phones millions Price 30 90 120 150 180 210 240 270 60 180 140 160 120 100 80 60 40 20 The demand schedule A demand schedule displays the quantities demanded at va
6、rious prices This demand schedule provides the quantity of cellphones demanded at specific prices Notice that as price falls the quantity demanded increases 3 6 Cell phones millions Price 30 90 120 150 180 210 240 270 60 180 140 160 120 100 80 60 40 20 The demand curve Quantity of cell phones millio
7、ns 306090120150180210240270 1 As the price decreases 0 20 40 60 80 100 120 140 160 180 200 220 Price 2 the quantity demand increases The demand curve illustrates the relationship between the quantity demanded and the price of the good holding all of the other non price determinants constant 3 7 Acti
8、ve Learning Constructing demand Use the following demand schedule to construct the demand curve P Q PriceQuantity 1280 2260 3240 4220 5200 6180 7160 8140 3 8 Active Learning Constructing demand Use the following demand schedule to construct the demand curve P Q PriceQuantity 1280 2260 3240 4220 5200
9、 6180 7160 8140 3 9 Changes in demand The five most important non price determinants of demand are What happens when one of the non price determinants changes If positive influence demand increases If negative influence demand decreases PreferencesNumber of buyers IncomesExpectations Price of relate
10、d goods 3 10 When demand increases the demand curve shifts to the right When demand decreases the demand curve shifts to the left Shifting the demand curve 0 40 80 120 160 200 240 060120180240 Quantity of cell phones millions Price DA DB DC 3 11 Shifts versus movements There is an important differen
11、ce between a shift in the demand curve and a movement along the demand curve If the price decreases then quantity demanded increases and there is a movement along the demand curve If a non price determinant changes then the demand curve shifts with changes in the quantity demanded at every price Qua
12、ntity of cell phones millions 0 40 80 120 160 200 240 60120180240 Price DB DA DC D Quantity of cell phones millions 0 40 80 120 160 200 240 60120180240 Price 3 12 Active Learning Shifts vs movements Indicate whether a shift or movement occurs in the market for cellphones when each of the following d
13、eterminants changes Advertising causes individuals to prefer cellphones over home phones Cellphones go on sale Cellphone calling plans become more expensive 3 13 Active Learning Shifts vs movements Change in preferences towards the good Increase in demand Demand curve shifts right 0 40 80 120 160 20
14、0 240 060120180240 Quantity of cell phones millions Price DA DB Advertising causes individuals to prefer cellphones over home phones 3 14 Active Learning Shifts vs movements Sales imply the price is going down This causes a movement along the demand curve Quantity of cell phones millions 30609012015
15、0180210240270 1 As the price decreases 0 20 40 60 80 100 120 140 160 180 200 220 Price 2 the quantity demand increases Cellphones go on sale 3 15 Active Learning Shifts vs movements Change in related good Cellphone plans are complements to cellphones Since the complement becomes more expensive the d
16、emand decreases Demand curve shifts left Cellphone calling plans become more expensive 0 40 80 120 160 200 240 060120180240 Quantity of cell phones millions Price DA DB 3 16 Supply As a group producers determine the supply of a product The quantity supplied is the amount of a particular good that producers are willing and able to purchase at a given price The law of supply states that the higher the price the higher the quantity supplied all other things equal 3 17 Cell phones millions Price 270
