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1、Chapter 4 Supply and Demand Fall 2017,1,Questions,If you are making real estate investment decisions, how would you predict the effect of the policy changes? What are the real factor driving the residential housing price in China? What are the long-run perspectives of Chinese real estate markets?,2,
2、The Market Mechanism,A Market is a mechanism through which buyers and sellers interact to determine prices and exchange goods, services, and assets Geographical area; Time period; Good/service being traded The “indivisible hand” No single individual or organization or government is responsible for s
3、olving the economic problems in a market economy Our society, despite of its fragility (surprise!), functions well for most of the time in a spontaneous manner To know how market help to solve the important questions and to be familiar with the following economic concepts, we need to study the deman
4、d and supply model (D-S model) Price; market equilibrium; efficiency,3,Markets and Competition,Supply and demand Words economists use most often The forces that make market economies work Refer to the behavior of people as they interact with one another in competitive markets,4,Markets and Competiti
5、on,Market A group of buyers and sellers of a particular good or service Buyers as a group Determine the demand for the product Sellers as a group Determine the supply of the product,5,Markets and Competition,Markets take many forms Highly organized Markets for many agricultural commodities Less orga
6、nized Market for ice cream in a particular town,6,Markets and Competition,Competitive market Market in which there are many buyers and many sellers Each has a negligible impact on market price Price and quantity are determined by all buyers and sellers As they interact in the marketplace,7,Markets a
7、nd Competition,Perfectly competitive market Goods offered for sale are all exactly the same Buyers and sellers are so numerous No single buyer or seller has any influence over the market price Price takers At the market price Buyers can buy all they want Sellers can sell all they want,8,Markets and
8、Competition,Monopoly The only seller in the market Sets the price Other markets Between perfect competition and monopoly,9,Demand,Quantity demanded Amount of a good that buyers are willing and able to purchase Law of demand Other things equal When the price of a good rises, the quantity demanded of
9、the good falls When the price falls, the quantity demanded rises,10,Demand,Demand Relationship between the price of a good and quantity demanded Demand schedule: a table Demand curve: a graph Price on the vertical axis Quantity on the horizontal axis Individual demand An individuals demand for a pro
10、duct,11,Figure 1,Catherines Demand Schedule and Demand Curve,Demand curve,The demand schedule is a table that shows the quantity demanded at each price. The demand curve, which graphs the demand schedule, illustrates how the quantity demanded of the good changes as its price varies. Because a lower
11、price increases the quantity demanded, the demand curve slopes downward.,1. A decrease in price . . .,2. . . . increases quantity of cones demanded.,12,Demand,Market demand Sum of all individual demands for a good or service Market demand curve Sum the individual demand curves horizontally Total qua
12、ntity demanded of a good varies As the price of the good varies Other things constant,13,Figure 2,Market Demand as the Sum of Individual Demands,The quantity demanded in a market is the sum of the quantities demanded by all the buyers at each price. Thus, the market demand curve is found by adding h
13、orizontally the individual demand curves. At a price of $2.00, Catherine demands 4 ice-cream cones, and Nicholas demands 3 ice-cream cones. The quantity demanded in the market at this price is 7 cones.,14,Figure 2,Market Demand as the Sum of Individual Demands,DCatherine,Catherines demand,DNicholas,
14、Nicholass demand,+,=,DMarket,Market demand,15,Demand,Shifts in the demand curve Increase in demand Any change that increases the quantity demanded at every price Demand curve shifts right Decrease in demand Any change that decreases the quantity demanded at every price Demand curve shifts left,16,Fi
15、gure 3,Shifts in the Demand Curve,Price of Ice-Cream Cones,Demand curve, D1,Demand curve, D3,Demand curve, D2,Increase in Demand,Decrease in Demand,Any change that raises the quantity that buyers wish to purchase at any given price shifts the demand curve to the right. Any change that lowers the qua
16、ntity that buyers wish to purchase at any given price shifts the demand curve to the left.,17,Demand,Variables that can shift the demand curve Income Prices of related goods Tastes Expectations Number of buyers,18,Demand,Income Normal good Other things constant An increase in income leads to an increase in demand Inferior good Other things constant An increase in income leads to a decrease in demand,19,Demand,Prices of related goods Substitutes, two goods An increase in the pr
