Market Compition

8/18/2019 Market Compition

1/51

Copyright © 2004 South-Western

MARKETS AND COMPETITION

• Buyers determine demand .

• Sellers determine supply


2/51


Competitive Markets

• A competitive market is a market in which thereare many buyers and sellers so that each has anegligible impact on the market price.


3/51


• Perfect Competition• Products are the same• Numerous buyers and sellers so that each has no

influence over price• Buyers and Sellers are price takers

• onopoly• !ne seller" and seller controls price

Competition: Perfect and Other ise


4/51


• !ligopoly• #ew sellers• Not always aggressive competition

• onopolistic Competition• any sellers• Slightly differentiated products• $ach seller may set price for its own product

Competition: Perfect and Other ise


5/51


DEMAND

• Quantity demanded is the amount of a goodthat buyers are willing and able to purchase.

• %aw of &emand• 'he law of demand states that" other things e(ual"

the (uantity demanded of a good falls when the price of the good rises.


6/51


The Demand C!rve: The Re"ationship#et een Price and $!antit% Demanded

• &emand Schedule• 'he demand schedule is a table that shows the

relationship between the price of the good and the

(uantity demanded.


7/51


Catherine&s Demand Sched!"e


8/51


The Demand C!rve: The Re"ationship#et een Price and $!antit% Demanded

• &emand Curve• 'he demand curve is a graph of the relationship

between the price of a good and the (uantity

demanded.


9/51

'i(!re ) Catherine&s Demand Sched!"e and DemandC!rve


Price of

Ice-Cream Cone

*

+,-*

+,**

),-*

),**

*,-*

) + . / - 0 1 2 3 )* )) Quantity of Ice-Cream Cones

4.,**

)+

), A decreasein price ,,,

+, ,,, increases 5!antit%

of cones demanded,


10/51Copyright © 2004 South-Western

Market Demand vers!s Individ!a" Demand

• arket demand refers to the sum of allindividual demands for a particular good orservice.

• )raphically" individual demand curves aresummed hori*ontally to obtain the marketdemand curve.



Shifts in the Demand C!rve

• Change in +uantity &emanded• ovement along the demand curve.• Caused by a change in the price of the product.



0

D

Price of Ice-CreamCones

Quantity of Ice-Cream Cones

A ta6 that raises theprice of ice7creamcones res!"ts in a

movement a"on( thedemand c!rve,

A

B

8

1.00

$2.00

4

Chan(es in $!antit% Demanded




• Consumer income• Prices of related goods• 'astes• $,pectations• Number of buyers




• Change in &emand• A shift in the demand curve" either to the left or

right.

• Caused by any change that alters the (uantitydemanded at every price.


15/51

'i(!re . Shifts in the Demand C!rve

Copyright©2003 Southwestern/ homson !earning

Price of

Ice-CreamCone


Increasein demand

Decreasein demand

Demand c!rve8 D .

Demandc!rve8 D )

Demandc!rve8 D +

*




• Consumer -ncome• As income increases the demand for a normal good

will increase.

• As income increases the demand for an inferior good will decrease.



$3.00

2.5

02.001.50

1.000.50

21 3 4 5 6 8 ! 10 1211

Price of Ice-Cream Cone

Quantityof Ice-

CreamCones

0

Increasein "eman"

An increasein income,,,

D1

D2

Cons!mer IncomeNorma" 9ood



$3.00

2.5

02.001.50

1.000.50

21 3 4 5 6 8 ! 10 1211

Price of Ice-Cream Cone

Quantity ofIce-Cream

Cones0

#ecreasein "eman"

An increasein income,,,

D1

D2

Cons!mer IncomeInferior 9ood




• Prices of elated )oods• /hen a fall in the price of one good reduces the

demand for another good" the two goods are called

substitutes .• /hen a fall in the price of one good increases the

demand for another good" the two goods are calledcomplements .


20/51

Ta#"e ) aria#"es That Inf"!ence ;!%ers

Copyright©2004 South-Western



S

• Quantity supplied is the amount of a good thatsellers are willing and able to sell.

• %aw of Supply• 'he law of supply states that" other things e(ual" the

(uantity supplied of a good rises when the price ofthe good rises.



The S!pp"% C!rve: The Re"ationship #et eenPrice and $!antit% S!pp"ied

• Supply Schedule• 'he supply schedule is a table that shows the

relationship between the price of the good and the

(uantity supplied.



;en&s S!pp"% Sched!"e



The S!pp"% C!rve: The Re"ationship #et eenPrice and $!antit% S!pp"ied • Supply Curve

• 'he supply curve is the graph of the relationship between the price of a good and the (uantity

supplied.


25/51

'i(!re - ;en&s S!pp"% Sched!"e and S!pp"% C!rve


Price of

Ice-CreamCone

*

+,-*

+,**

),-*

),**

) + . / - 0 1 2 3 )* )) Quantity of Ice-Cream Cones

4.,**

)+

*,-*

), Anincrease in price ,,,

+, ,,, increases 5!antit% of cones s!pp"ied,



Market S!pp"% vers!s Individ!a" S!pp"%

• arket supply refers to the sum of allindividual supplies for all sellers of a particulargood or service.

• )raphically" individual supply curves aresummed hori*ontally to obtain the marketsupply curve.



Shifts in the S!pp"% C!rve

• -nput prices• 'echnology• $,pectations• Number of sellers


28/51



• Change in +uantity Supplied• ovement along the supply curve.• Caused by a change in anything that alters the

(uantity supplied at each price.


29/51

Copyright © 2004 South-Western1 5

Price of Ice-CreamCone

Quantity ofIce-Cream

Cones0

S

1.00A

C$3.00

A rise in the priceof ice creamcones res!"ts in amovement a"on(the s!pp"% c!rve,

Chan(e in $!antit% S!pp"ied


30/51



• Change in Supply• A shift in the supply curve" either to the left or right.

• Caused by a change in a determinant other than price.


31/51

'i(!re 1 Shifts in the S!pp"% C!rve


Price of

Ice-CreamCone

Quantity of

Ice-Cream Cones

*

Increasein s!pp"%

Decreasein s!pp"%

S!pp"% c!rve8 S .

c!rve8S!pp"%

S )S!pp"%

c!rve8 S +


32/51

Ta#"e + aria#"es That Inf"!ence Se""ers



33/51


S AND DEMANDTO9ET?ER

• Equilibrium refers to a situation in which the price has reached the level where (uantitysupplied e(uals (uantity demanded.


34/51



• Equilibrium Price• 'he price that balances (uantity supplied and

(uantity demanded.

• !n a graph" it is the price at which the supply anddemand curves intersect.

• Equilibrium Quantity

• 'he (uantity supplied and the (uantity demanded atthe e(uilibrium price.

• !n a graph it is the (uantity at which the supply anddemand curves intersect.


35/51


At 4+,**8 the 5!antit% demandedis e5!a" to the 5!antit% s!pp"ied@


"eman#c%e#u&e

u''&yc%e#u&e


36/51

'i(!re 2 The E5!i"i#ri!m of S!pp"% and Demand


Price of Ice-Cream

Cone

* ) + . / - 0 1 2 3 )* )) )+


).

E5!i"i#ri!m5!antit%

E5!i"i#ri!m price E5!i"i#ri!m

S!pp"%

Demand

4+,**


37/51

'i(!re 3 Markets Not in E5!i"i#ri!m


Price of Ice-Cream

Cone

*

S!pp"%

Demand

$a% &'cess Supp(y

$!antit%demanded

$!antit%s!pp"ied

S!rp"!s

Quantity of Ice-Cream

Cones

/

4+,-*

)*

+,**

1


38/51


E5!i"i#ri!m

• Surplus• /hen price 0 e(uilibrium price" then (uantity

supplied 0 (uantity demanded.

• 'here is e,cess supply or a surplus.• Suppliers will lower the price to increase sales" thereby

moving toward e(uilibrium.


39/51


E5!i"i#ri!m

• Shortage• /hen price 1 e(uilibrium price" then (uantity

demanded 0 the (uantity supplied.

• 'here is e,cess demand or a shortage.• Suppliers will raise the price due to too many buyers

chasing too few goods" thereby moving towarde(uilibrium.

( k


40/51

'i(!re 3 Markets Not in E5!i"i#ri!m


Price of Ice-Cream

Cone

* Quantity of Ice-Cream

Cones

S!pp"%

Demand

$)% &'cess #eman"

$!antit%s!pp"ied

$!antit%demanded

),-*

)*

4+,**

1/

Shorta(e


41/51


E5!i"i#ri!m

• Law of supply and demand • 'he claim that the price of any good ad2usts to bring

the (uantity supplied and the (uantity demanded for

that good into balance.


42/51


Three Steps to Ana"% in( Chan(es inE5!i"i#ri!m

• &ecide whether the event shifts the supply ordemand curve 3or both4.

• &ecide whether the curve3s4 shift3s4 to the leftor to the right.

• 5se the supply6and6demand diagram to seehow the shift affects e(uilibrium price and

(uantity.

'i(!re )* ?o an Increase in Demand Affects the


43/51

i(!re ) ?o an Increase in Demand Affects theE5!i"i#ri!m


Price of Ice-Cream

Cone

* Quantity ofIce-Cream Cones

S!pp"%

Initia"e5!i"i#ri!m

D

D

., , , , and a hi(her 5!antit% so"d,

+, , , , res!"tin(in a hi(her price , , ,

), ?ot eather increases

the demand for ice cream , , ,

+,**

1

Ne e5!i"i#ri!m4+,-*

)*


44/51


Three Steps to Ana"% in( Chan(es inE5!i"i#ri!m • Shifts in Curves versus ovements along

Curves• A shift in the supply curve is called a change in

supply.• A movement along a fi,ed supply curve is called a

change in (uantity supplied.• A shift in the demand curve is called a change in

demand.• A movement along a fi,ed demand curve is called a

change in (uantity demanded.

'i(! )) ? D i S! "% Aff t th E5!i"i# i!


45/51

'i(!re )) ?o a Decrease in S!pp"% Affects the E5!i"i#ri!m


Price of Ice-Cream

Cone

* Quantity ofIce-Cream Cones

Demand

Nee5!i"i#ri!m

Initia" e5!i"i#ri!m

S )

S +

+, , , , res!"tin(in a hi(her price of icecream , , ,

), An increase in the

price of s!(ar red!cesthe s!pp"% of ice cream, , ,

., , , , and a "o er 5!antit% so"d,

+,**

1

4+,-*

/

Ta#"e / Bhat ?appens to Price and $!antit% Bhen S!pp"%


46/51

Ta# e / Bhat ?appens to Price and $!antit% Bhen S!pp %or Demand Shifts



47/51


S!mmar%

• $conomists use the model of supply anddemand to analy*e competitive markets.

• -n a competitive market" there are many buyers

and sellers" each of whom has little or noinfluence on the market price.


48/51


S!mmar%

• 'he demand curve shows how the (uantity of agood depends upon the price.• According to the law of demand" as the price of a

good falls" the (uantity demanded rises. 'herefore"the demand curve slopes downward.

• -n addition to price" other determinants of howmuch consumers want to buy include income" the

prices of complements and substitutes" tastes"e,pectations" and the number of buyers.

• -f one of these factors changes" the demand curve

shifts.


49/51


S!mmar%

• 'he supply curve shows how the (uantity of agood supplied depends upon the price.• According to the law of supply" as the price of a

good rises" the (uantity supplied rises. 'herefore"the supply curve slopes upward.

• -n addition to price" other determinants of howmuch producers want to sell include input prices"technology" e,pectations" and the number of sellers.

• -f one of these factors changes" the supply curveshifts.


50/51


S!mmar%

• arket e(uilibrium is determined by theintersection of the supply and demand curves.

• At the e(uilibrium price" the (uantity demanded

e(uals the (uantity supplied.• 'he behavior of buyers and sellers naturally

drives markets toward their e(uilibrium.


51/51

S!mmar%

• 'o analy*e how any event influences a market"we use the supply6and6demand diagram toe,amine how the even affects the e(uilibrium

price and (uantity.• -n market economies" prices are the signals that

guide economic decisions and thereby allocate

resources.

Documents

Market Compition